4-28-16 – Where is the market going?

Stocks are trading in mixed fashion, as earnings and merger news helped offset a bit of anxiety on the macro front. The S&P 500 is down 2.7 points to 2092.45 through the first hour Thursday and six points from session lows.

Facebook (FB) is up 10% in the wake of its earnings. A number of other names, like Ford (F), Texas Instruments (TXN), and Aetna (AET), are also out with better-than-expected results.

Meanwhile, a number of mergers were announced. Abbott (ABT) made a $25 billion play for St. Jude Medical (STJ). Comcast (CMCSA) is acquiring Dreamworks (DWA) and Sonafi (SNY) has made an offer for Medivation (MDVN).

Yet, the S&P 500 is under water after the latest GDP report showed the economy growing at a worse-than-expected .5% annualized rate in the first quarter.

Stock index futures were already under water prior to the data after Bank of Japan defied market expectations and left monetary policy unchanged at the conclusion of its meeting Thursday.

Japan’s Nikkei tumbled 3.4% and the yen gained nearly 3% on the buck.

Yet, outside of Japan, trading is orderly. Treasury bonds are holding most of the large gains scored in the wake of Wednesday’s Federal Reserve meeting and the yield on the benchmark ten-year Treasury is at 1.87%.

Crude oil is flat near $45.40 and gold gained $8 to $1258.50.

Eight of ten market sectors are lower on Wall Street, led by losses in Utilities (XLU), Financials (XLF), and Basic Materials (XLB). Consumer Discretionary (XLY) and Consumer Products (XLP) are seeing relative strength.

CBOE Volatility Index (VIX) is down .17 to 13.60 and trading in the options market is relatively active, with 2.2 million calls and 1.6 million puts traded through the first hour. Facebook Weekly 120 calls, iShares Japan Fund (EWJ) Jun 11 puts, and VIX May 20 calls are among the most actives.

See Tradespoon’s Stock Forecast on CBOE Volatility Index (VIX)

Tradespoon’s Stock Forecast on CBOE Volatility Index (VIX)

On the surface, today’s dip in VIX might seem counter-intuitive given the heavy news flow on the macro front. After all, the volatility index tracks the expected or implied volatility priced into a strip of S&P 500 Index (SPX) options and is sometimes known as the market’s “fear gauge” due to fact that it tends to tick higher during times of market uncertainty. In addition, the equities market is also approaching a seasonally weak period that has given rise to the adage “sell in May and go away”. Should VIX not be moving higher?

Yet, while the recent rally in the S&P 500 seems to have stalled, most measures of the broader equities market are certainly lacking in volatility lately. Consider this, the average daily move in the S&P 500 during the month of April is less than 10 points, which compares to average daily moves of almost 18 points during the first three months of the year.

In a nutshell, real or historical market volatility is declining and that is one reason VIX is returning to the lower end of the range. In addition, important short-term event risk has passed with the Wednesday’s FOMC meeting in the books and many large cap widely-held names now having released their first quarter results.

Focus next turns to a flood of economic data due out in the first week of May. Until then, expect the churning, mixed market action to continue, as money flows from one sector to the next based on the price action in the commodities markets and the latest earnings headlines. As the old saying goes, “there is always a bull market somewhere” and, of course, a bear market somewhere as well.

The S&P 500 continues to face resistance at 2096, 2100 and 2110. Support is likely at 2086, 2075, and 2068.