5-12-16 – Where is the market going?

Stocks opened higher, but have surrendered the morning gains and are under water midday Thursday. The S&P 500 is down 6.66 points to 2057.80, 16 points from session highs, and adding to the nearly 20-point decline suffered Wednesday.

Seven of ten market sectors are lower, led by losses in Technology (XLK), Healthcare (XLV), and Telecomm (IYZ). Basic Materials (XLB) and Utilities (XLU) are seeing relative strength.

Crude oil lost 40c to $45.83 and gold gave up $5.5 to $11270.

Treasury bonds are modestly lower despite a surprise uptick in Weekly Jobless Claims and ahead of a reports on Retail Sales, Inflation (PPI), and Sentiment (U of Michigan) Friday morning. The yield on the benchmark ten-year is now 1.74%.

CBOE Volatility Index (VIX) touched a morning low of 13.95 and is up .50 to 15.20. Trading in the options market is a bit light, as many players are likely in route to OIC 2016 in Los Angeles, CA. Roughly 3.1 million calls and 3.3 million puts traded across the exchanges. Projected volume of 14.4 million for the day is 1 million shy of the one-month daily average, which is now 15.4 million contracts.

SPDR Energy Fund (XLE) May 61 puts, SPDR 500 Trust (SPY) Weekly 205 puts, and VIX May 13.5 puts are the most actives so far.

Looking forward, tomorrow’s economic numbers are likely to be the next short-term catalyst for the equities market. Specifically, the Retail Sales number will be scrutinized after disappointing earnings from the likes of Macy’s (M), Nordstrom (JWN), and others over the past two days. JC Penney (JCP) releases results tomorrow morning as well.

Economists expect tomorrow’s number to show Retail Sales up a respectable .8% for April, but that follows a .3% decline the month before.

See Tradespoon’s Stock Forecast on iShares Long-Term Treasury Bond Fund (TLT)

Tradespoon’s Stock Forecast on iShares Long-Term Treasury Bond Fund (TLT)

One asset class that seems to be benefiting from the recent anxiety about the broader economy and consumer spending is the Long Bond. The chart above shows the performance of the iShares Long-term Treasury Bond Fund (TLT), which holds a basket of Treasuries that mature in 20+ years.

As the retailers were rattled on earnings worries yesterday, TLT shares gained .6% and have now erased the losses suffered during the second half of April. The ETF is revisiting the previous resistance highs of $132 per shares from mid-February and mid-April.

The strength in longer-term Treasury bonds seems to be reflecting underlying uncertainty about the economic outlook (as the price moves opposite to yields), which appears to be keeping a lid on rallies in the equities markets as well. Therefore, the action in the ETF is worth noting into the Retail Sales and other data tomorrow morning. Further strength is a sign that worries about the economic outlook persist.

From there, the earnings calendar slows notably next week, but a number of retailers will be out with results including big names like Home Depot (HD), Target (TGT) and Walmart (WMT). The economic calendar holds manufacturing, housing data and inflation (CPI) data and the FOMC minutes on Wednesday will likely shape rate expectations for the Federal Reserve meeting. Again, the action in TLT could serve as an indicator of investor sentiment as the numbers unfold.

As of now, volatility is picking up a bit, but had fallen to very low levels and there are no signs of panic on the Street. The S&P 500 continues to face resistance at 2,066, 2075, and 2,085. Short-term support at 2,055, 2044, and 2039.