4-7-16 – Where is the market going?

A see-saw week of trading continues into midday Thursday. After rallying 21.49 points Wednesday, the S&P 500 is down 18.63 points to 2048.03. For the week, the index is off 24.5 points due to the 28-point loss suffered Monday-Tuesday.

Treasury bonds are solidly higher and have recouped the losses suffered Wednesday in the wake of murky minutes from the March FOMC meeting. The yield on the benchmark ten-year Treasury is falling to one-month lows of less than 1.7%.

Crude oil is down 75c to $37 after spiking on Weekly Inventory Data Wednesday. Gold gained $17 to $1241.

On Wall Street, nine of ten market sectors are lower, being paced by losses in Basic Materials (XLB), Financials (XLF), and Technology (XLK). Utilities (XLU) are seeing modest strength.

CBOE Volatility Index (.VIX) is up 1.39 points to 15.48 and moving higher for a third time this week after falling to multi-month lows near 13 on Friday. Meanwhile, options volumes are picking up a bit. Roughly 3.2 million calls and 3 million puts traded across the exchanges. Projected volume of 14.9 million for the day is roughly 5% greater than the one-month daily average.

Office Depot (ODP) Apr 8 puts and May 7 puts are the most actives, with more than 38,000 traded in each, driven by spread trading. SPDR 500 Trust (SPY) Weekly 205 puts, Market Vectors Gold Mining Fund (GDX) Apr 19 puts, and AK Steel (AKS) Jan 5 calls are actively traded Thursday as well.

Looking forward, the economic calendar is light until Retail Sales and inflation (PPI) data are released in the middle of next week.

Earnings reports will begin to take center stage with Alcoa (AA) unofficially kicking things off Monday. Some of the big financials will report towards the end of next week and then the floodgates on first quarter reports open wide on Monday, April 18th.

According to Zack’s, overall results for the first quarter are expected to be down 10.3% from a year ago on 2% lower revenues. Negative earnings, a trend which is expected to persist into the second quarter, hardly offers much fodder for the bulls.

Yet, while pre-earnings “jitters” are perhaps weighing on the equities markets this week, macro-economic concerns should not be overlooked as well. For instance, the ongoing strength in the yen is raising some concerns about Japan’s economic outlook and deflationary implications, as well as a drag on Japanese exports. The chart above shows the CurrencyShares Japan Yen Trust (FXY) surging to new highs today.

At the same time, there was a decidedly lackluster reaction in overseas equities markets to the rally on Wall Street Wednesday, which seemed primarily driven by biotech stocks and the sharp spike in crude oil, rather than anything contained within the minutes of the Fed meeting. Meanwhile, the one-month lows on Treasury bond yields, the jump in VIX, and the sharp uptick in gold today all suggest that sentiment is turning a bit more cautious.

In this environment, equities face many headwinds in the near-term and until the earnings parade really hits the Street 10 days from now. The S&P 500 has short-term resistance at 2050, 2063 and 2067. Support is likely at 2044, 2037 and 2033.