3-31-16 – Where is the market going?

Stocks are ending a bullish month of March in mixed fashion as the S&P 500 has traded in a narrow 5-point range and is up 2.17 to 2066.12 into midday Thursday. For the month, the S&P rallied 108 points or 5.5%.

Treasury bonds are steady ahead of a flood of data, including jobs data, due Friday. The yield on the benchmark ten-year is flat at 1.83% today, which is quite lower than the 2.27% seen at the end of 2015 and also well above the 52-week low of 1.57% from early-February.

Crude oil is finishing a volatile quarter with a modest gain of 43c to $36.75 Thursday. Gold is capping things off with a $6.5 advance to $1235 Thursday and a 16% rally for the quarter. The dollar is holding modestly higher after two-days of losses sent the buck towards six-month lows.

On Wall Street, a familiar pattern of mixed trading returned Thursday. While Telecomm (IYZ), Financials (XLF), and Utilities (XLU) are holding modest gains, Basic Materials (XLP) and Consumer Staples (XLP) are seeing relative weakness.

Indeed, despite a lot of ups and downs in the first quarter, the S&P 500 is finishing Q1 with only modest gains because not all sectors have participated in the advance. Most notably, as we can see from the table below, Financials and Healthcare (XLV) are still underwater YTD. Relative strength has come from some of the more defensive sectors – Utilities (XLU), Telecomm and Consumer Staples.

In the options market, the mixed trading and relatively flat market over the past couple of weeks is taking a toll on volume and volatility. CBOE Volatility Index (VIX) is probing 2016 lows below 14. It is down 24.8% YTD.

Meanwhile, a total of 2.5 million puts and 2.2 million calls have traded across the exchanges through the first two hours today. Projected volume of the day, of 11.9 million, is well below the one-month average of 15.2 million. Monday was the lightest volume day of the year when 9.2 million contracts changed hands.

Tomorrow, however, volumes will pick up due to the Weekly and end-of-quarter expirations. Some players are also sidelined today ahead of the start of the second quarter and key monthly jobs data Friday.

Then it won’t be long before first quarter earnings reports flood the market beginning with Alcoa (AA) on 4/11 and the big financials in the days that follow. It wouldn’t be too surprising to see some pre-earnings “jitters” weigh on the market next week ahead of the numbers.

But first the market will navigate jobs data and its implications for interest rates and the USD. Support on the S&P 500 sits at yesterday’s lows at 2058 and at 2050. Resistance is likely at 2064 and 2078.