5-24-16 – Where is the market going?

Stocks opened modestly higher and the rally gathered some momentum into midday Tuesday. The S&P 500 is up 25.81 points to 2073.85 and less than one-point from session highs.

Gains across European equities markets and higher crude oil prices helped set a positive tone for morning trading. Crude is now up 70c to $48.78.

Gold lost $17.5 to $1234 and Treasury bonds are lower as equities rally and after the only economic stat of the day showed New Home Sales up to rate of 619K in April – easily topping expectations of 521K. The yield on the benchmark ten-year is ticking up to 1.88%.

Ten of ten market sectors on Wall Street are in the black, led by Technology (XLK), Financials (XLF), and Healthcare (XLV).

CBOE Volatility Index (.VIX) is off 1.20 points to 14.62 and overall options volumes are picking up from the very slow pace seen Monday. 3.6 million calls and 3.3 million puts trade through the first two hours. At the current rate, projected volume for the day is 16.3 million and nearly 10% greater than the one-month daily average.

SPDR 500 Trust (SPY) May 27th Weekly 207 puts, 204 puts, and 206 puts are the most actives of the day, which is surprising on a day when the ETF is up 1.2%. Indeed, today’s reaction in the S&P 500 might be a bit more technical rather than driven by fundamentals. The index seems to have successfully tested a key support area at 2,040 and, as we can see from the daily chart below, has reclaimed a 50-day moving average Tuesday.

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

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

Looking forward, the economic calendar remains light until Durable Goods, GDP, and Pending Home Sales data on Friday. Weekly oil inventory data might help set the tone for the energy sector Wednesday morning.

A handful of retailers including Costco (COST), Williams Sonoma (WSM), and Dollar Tree (DG) are due to report in the days ahead, but beyond that, the first quarter earnings reporting period is largely over. According to Zack’s, overall S&P 500 earnings are down 15.5% in the first quarter and expected to decline 13.3% in the second quarter, before seeing a rebound of 6% in the third quarter and a staggering 19% in the fourth.

These assumptions about a dramatic earnings turnaround for the second half of 2016 are likely keeping a floor under the S&P 500 despite the dismal results from the retailers in the past week, increasing expectations for a rate hike in June, uncertainty surrounding Presidential elections, and decidedly murky economic data.

The net result is a seesaw battle between bulls and bears, but no conviction either way, a lot of mixed trading, and the S&P 500 is at the same level today as it was six weeks ago. On any weakness, it is likely to find some support at 2065, 2051, and the 50-day moving average. Resistance at 2075, 2085, and 2100.