5-17-16 – Where is the market going?

Stocks are seeing choppy action after moving broadly higher Monday. The S&P 500 has given up 6 of the 20 points scored yesterday and sits near the lows of the day at 2060.

Treasury bonds are steady despite a round of stronger-than-expected Industrial Production, Housing Starts, and inflation (CPI) data. The yield on the benchmark ten-year has eased back to 1.74%, after spiking to 1.75% from one-month lows of 1.71% on Monday.

Crude oil gained another 56c to 2016 highs of $48.28 and gold added $9 to $1283.

Defensive sectors like Utilities (XLU), Healthcare (XLV) and Consumer Staples (XLP) are pacing the decline. Energy (XLE) is seeing a second day of relative strength.

CBOE Volatility Index (.VIX) is up .22 to 14.90 and options volumes are a bit light today. 2.8 million calls and 2.5 million puts traded across the exchanges through the first two hours. Projected volume for the day, of 13 million, is roughly 15% below the one-month daily average.

VIX June 25 calls, SPDR 500 Trust (SPY) Jun 190 puts, and iShares Emerging Markets Fund (EEM) Jun 32 calls are among the most actively traded options.

Looking forward, the S&P 500 continues to chop in a range and, with a relatively light earnings and economic calendar. The chart below shows the S&P 500 successfully testing its 50-day moving average after the 20-point gain on Monday.

The 50-day moving average, as well as 2060 and 2050, are areas of short-term support. Short-term resistance is likely as the S&P 500 moves towards 2071, 2081, and 2100.

See Tradespoon’s Stock Forecast on S&P 500 (GSPC)

Tradespoon’s Stock Forecast on S&P 500 (GSPC)

Treasuries will also be worth watching after Monday’s sell-off in the bond pits Monday. While the economic calendar is light tomorrow, the release of FOMC minutes Wednesday afternoon will be scrutinized for clues regarding the Federal Reserve’s next move. Specifically, will they or won’t they raise rates at the June 15^th meeting?

While the equities market is possibly already bracing for another incremental rate hike, the minutes could serve as the next catalyst for the dollar and Treasury bonds if the text raises expectations for additional rate increases. If so, the volatility in those markets could potentially spill over into equities.

In conclusion, the S&P 500 is at roughly the same levels today as it was 6 months ago, 9 months ago, and even 18 months ago. There is no reason to expect this longer-term trend of choppy trading to change substantially in the days ahead, but keep an eye out for the FOMC minutes Wednesday afternoon (and the 50-day moving average on the S&P 500) as a next short-term catalyst for the dollar, bonds, and stocks.