4-19-16 – Where is the market going?

Stocks opened modestly higher and are holding slim gains into midday Tuesday. The S&P 500 is up 5.43 points to 2099.77 and five points from session highs.

Treasury bonds are lower for a second time this week despite a report showing a big drop in Housing Starts and Building Permits. The yield on the benchmark ten-year is ticking up to 1.79%.

Crude oil added another $1.23 to $42.42 and now well off Monday morning lows of $39 per barrel. Gold gained $23 to $1256.

On Wall Street, market action is mixed, with six of ten market sectors holding higher. Basic Materials (XLB), Energy (XLE), and Financials (XLF) are pacing the advance. Tech (XLK) and Utilities (XLU) are seeing relative weakness.

CBOE Volatility Index (.VIX) is up .08 to 13.43 and trading in the options market is active. Roughly 4.4 million calls and 3.2 million puts traded across the exchanges. Projected volume of 18.1 million for the day is 25% greater than the one-month daily average.

SPDR 500 Trust (SPY) May 216 calls are the most actives as players take positions to maintain upside exposure to the equities market. 55,800 traded that strike. VIX May 18 and 25 calls are also among the most actives.

SDPR Oil and Production Fund (XOP) options are busy today as well. The ETF holds a basket of second tier oil and gas names like Southwest Energy (SWN), Chesapeake (CHK), and Marathon Oil (MRO). 243,000 calls and 13,000 puts traded in the product, which is double the daily average. One player initiated a bold trade and bought 50,000 Dec 42- 48 call spreads to open a new position.

As we can see from the chart above, shares of the oil and production fund have already made a strong run in 2016 and reclaimed a 200-day moving average today. RSI (bottom of chart) suggests that the group is the most overbought in years, however, and the bulk of these companies will report earnings over the next few weeks.

Since the energy sector, like today and yesterday, has been pacing the advance, the performance over the next few weeks has important implications for the broader market as well. Therefore, the profit numbers seem to have broader market significance as well.

Obviously, the focus will also be on earnings from a number of other large cap names this week including several Dow components like Intel (INTC), Microsoft (MSFT), and GE. The economic calendar is light this week, but the continued strength in crude oil has obviously been an important catalyst for the broader market. Therefore, Weekly Inventory Data could potentially have market impact tomorrow morning.

The S&P 500 is testing its support/resistance level at 2,100. It could also see some resistance that 2,105 and 2,110 levels. Support at 2,096, 2,080 and 2,075.