5-10-16 – Short Covering or Risk on?

Stocks opened higher following a day of quiet trading Monday and on the heels of strength across overseas markets. After climbing just 1.55 points to start the trading week, the S&P 500 is up 16.43 points to 2075.12 Tuesday and two points from session highs midday Tuesday.

Development overseas are driving the positive sentiment. China’s latest inflation data was up 2.3% in April and unchanged from March. Talks in Europe related to Greek bailout funds are reportedly going well and Germany’s trade balance showed a second consecutive month of export gains.

Japan’s Nikkei paced an advance across Asia with a gain of 2.2% and stocks were broadly higher across Europe before the opening bell on Wall Street.

Meanwhile, crude oil gained 91 cents to $44.35 and gold lost another $4 after falling nearly $30 to $1265 Monday.

Treasury bonds are flat as equities rally and on a light week for economic data. The yield on the benchmark ten-year remains near 1.76%.

CBOE Volatility Index (.VIX) is off .69 to 13.88 and options volumes are picking up from the slow pace seen Monday. Roughly 3 million calls and 3.4 million puts traded across the exchanges through the first two hours Tuesday. Projected volume of the day, of 14.4 million, is about 1 million less than the one-month daily average.

Bank of America (BAC) May 13th Weekly 15 puts are the most actives with more than 100,000 contracts traded. SPDR 500 Trust (SPY) Weekly 203.5 puts, VIX May 18 calls, and Gap Stores (GPS) Jun 17 puts are the next most actives.

Looking forward, the economic calendar is light and the pace of earnings reports slows throughout the remainder of the week, but there will be notable results coming from the retail sector. Not only is a report on monthly Retail Sales due Friday morning, but Macy’s (M), Kohl’s (KSS), Nordstrom (JWN), and JC Penney (JCP) report earnings in the days ahead. A number of other names from the sector are releasing results next week.

See Tradespoon’s Stock Forecast on SPDR S&P Retail ETF (XRT)

Tradespoon’s Stock Forecast on SPDR S&P Retail ETF (XRT)

Given the recent angst about the global economic outlook, SPDR Retail Trust (XRT), which is an exchange-traded fund that holds shares in 100 companies (see full list here https://www.spdrs.com/product/fund.seam?ticker=XRT), will be worth watching as the numbers unfold. As we can see from the chart, shares have already slumped into a funk below a 200-day moving average. It is down today despite gains in the broader market and has lost 4.5% in the past two weeks.

In sum, the performance of the retailers as economic data and earnings results could be an important catalyst for the broader market over the next two weeks. XRT should find support around $43.50, 43, and $42.40 per share. Resistance at $44, $44.30 and the 200-day moving average. S&P 500 support sits at 2,063, 2,057, and 2,050. Short-term resistance at 2,080, 2,092 and 2,100.