3-3-2016 – Where is the market going?

Stocks are trading modestly lower Thursday morning after hard fought gains from the day before. The S&P 500 saw a notable turnaround Wednesday with the help of strengthening crude oil prices and added 8 points to the 46-point surge scored on Super Tuesday.

Heading into Thursday’s trading session, the S&P 500 had added 8.6% since 2/11/2015 and therefore it’s not surprising to see it down 8 points in the early going.

Six of ten market sectors are lower, led by modest losses in Utilities (XLU), Consumer Staples (XLP), and Healthcare (XLV). Basic Materials (XLB) are seeing relative strength.

Meanwhile, Treasury bonds remain under pressure heading into monthly payroll data Friday morning. Economists expect the report to show the economy adding 190,000 jobs and the unemployment rate holding steady at 4.9% for February. The yield on the benchmark ten-year Treasury, which was near 1.74% at its lows Monday, is at 1.85% after three days of losses across the Treasury curve.

In the commodities market, crude oil was seen as a key catalyst for Wednesday’s midday turnaround in the equities market and has given back 22c to $34.44. Gold is up another $4 to $1246 and giving ongoing support to mining stocks.

On the options front, trading has been running about the normal pace so far in March with a little more than 16 million contracts traded across the exchanges Tuesday and Wednesday. That’s in line with the average levels seen in February.

However, implied volatility is falling sharply. CBOE Volatility Index (.VIX) is up .26 to 17.45 today, but the uptick comes after a one-week 3.6-point drop sent the market’s “fear gauge” to 2016 lows.

The ongoing slide in VIX reflects changing investor sentiment and the improved underlying tone seen during the second half of February and into early-March. The uptick in crude oil has been cited as one catalyst. Indeed, the Energy (XLE) sector is up 11.2% since February 11 and certainly helping to pace the S&P’s advance.

However, Financials (XLF), Basic Materials (XLB), and Telecomm (IYZ) are also outperforming and the strength in those sectors seems to reflect optimism on the economic front as well. That is, the economy is growing enough for companies to generate reasonable earnings growth, but not at a pace fast enough that it ignites interest rate fears.

Time will tell whether the Goldilocks scenario plays out and, for that reason, tomorrow’s jobs report certainly holds some market moving potential. Investors will want to see a report that is not too hot and not too cold, or basically in-line with economist expectations.

Lastly, a look at the charts suggests that the S&P 500 has resistance around this week’s best levels of 1987, which coincides with previous resistance area from summer 2015. Beyond that, a move beyond 2000 will surely be tested. The decisive break of the 50-day moving average on Super Tuesday is certainly a bullish development. That average is likely to serve as support in the short-term. More immediate support likely exists at the 1967, 1964, and 1950 levels.