5-26-16 – Where is the market going?

Stocks are flat after two days of solid gains. The S&P 500 has traded in a narrow 7-point range and is down .61 to 2089.93 into midday Thursday after gaining 42 points, or 2%, Tuesday and Wednesday.

Crude oil is also unchanged at $49.56 after briefly touching more than $50 per barrel for the first time since October 2015. Gold is off $2 to $1221.50.

Looking at the bond pits, Treasuries are bid after three days of losses and the yield on the benchmark ten-year, which moves opposite to price, is back to unchanged for the week at 1.84%.

On Wall Street, action is decidedly mixed, with five of ten market sectors in the black. Utilities (XLU), Telecomm (IYZ), and Consumer Staples (XLP) are the best percentage gainers. Basic Materials (XLB) and Financials (XLF) are seeing relative weakness.

CBOE Volatility Index (.VIX) is down .09 to 13.81 amid relatively light volume in the options market. Roughly 2.9 million calls and 2.7 million puts traded across the exchanges through the first two hours. Projected volume for the day is 13 million and 15% below the one-month daily average.

SPDR 500 Trust (SPY) Weekly 208 puts are busy with volume of more than 40K contracts. VIX Jul 15 puts, PowerShares QQQ (QQQ) Jun 112.5 calls, and SPDR Oil Exploration and Production Fund (XOP) Sep 40 – 46 call spreads are seeing notable flow Thursday as well.

Looking forward, most of this week’s economic numbers have been released, but a report on GDP will likely set the tone for trading Friday morning. Economists expect the report to show the economy growing at a 1% annual rate in the first quarter. The University of Michigan Consumer Sentiment Index for May at 10:00 ET Friday morning is this week’s last economic stat.

From there, trading will likely slow Friday afternoon into the three-day weekend. The earnings calendar is light next week and therefore the focus is likely to turn to the flood of economic data due in the early days of June, the prospects for rate changes at the Jun 15th FOMC meeting, and the ongoing moves in crude oil.

Indeed, Energy was an important driver for the 2% two-day spike in the S&P 500 Tuesday and Wednesday. SPDR Energy Fund (XLE), which is one of ten sector ETFs that collectively hold all S&P 500 companies, is flat today after a two-day 2.1% advance. It has surged 30% off its January lows.

See Tradespoon’s Stock Forecast on SPDR TR-SBI INT-ENERGY (XLE)

Tradespoon’s Stock Forecast on SPDR TR-SBI INT-ENERGY (XLE)

The daily chart of the Energy ETF (above) shows the four-month uptrend in XLE and the bullish move above both the 50-day and 200-day moving averages. However, Thursday’s highs of $67.91 is back within striking distance of the late-April closing highs (resistance) of $68.63. In sum, if crude oil recaptures the $50 level in the near-term, it will have important implications for the energy sector and that, in turn, has implications for the S&P 500 as well.

Speaking of the S&P, on any weakness, support is likely at 2080, 2065 and the 50-day moving average. Near-term resistance at 2094, 2100, and 2110.