5-31-16 – Where is the market going?

Stocks opened higher, but are modestly lower after the three-day weekend. The S&P 500 is down 2 points to 2097.06 midday Tuesday and, for the month of May, has gained 30 points or roughly 1.5%.

Treasury bonds have erased early losses and are decidedly flat following a round of mixed economic news. The yield on the benchmark ten-year remains at 1.85%.

Crude oil added 53c to $49.86 and gold lost $1 to $1216.

On Wall Street, six of ten market sectors are lower. Consumer Staples (XLP) and Basic Materials (XLB) are seeing relative weakness. Telecomm (IYZ) is the best performer.

CBOE Volatility Index (VIX) is up 1.18 to 14.30 after probing the lower end of the 2016 range late last week. Overall options volumes are light. Roughly 3 million calls and 2.5 million puts traded across the exchanges. Projected volume for the day is 12.6 million and 15% below this month’s average of 14.9 million.

Kinross Gold (KGC) Aug 5 calls, Marathon Oil (MRO) Jun 15 calls, and VIX Jun 26 calls are the day’s most actives.

Looking forward, the pace of earnings reports slows to a crawl and doesn’t pick up again until the middle of July.

However, the economic calendar is chock full of data heading into the June 15th FOMC meeting. ISM Index, Construction Spending, and ADP Private Jobs numbers will set the tone for trading tomorrow morning. Auto sales numbers are also released Wednesday.

Then tone of trading might turn to a bit of wait-and-see action Thursday ahead of key Payroll data Friday morning.

Given that domestic economic news will be the main driver for financial markets into the Fed decision in two weeks, the action in the bond pits will be scrutinized for signs of shifting rate expectations. In that respect, the chart below shows the iShares Long-term Bond ETF (TLT) at important technical levels.

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)

After falling sharply this morning, TLT has recouped its losses and is again testing its 50-day moving average. Shares, which represent ownership in a basket of Treasury bonds that mature in 20+ years and move opposite to yields, is up 8% YTD. However, much of the gains were recorded in January and, since then, the trend has been rather see-saw sideways action.

But recall that, on May 18th, shares suffered a nasty one-day 1.4% drop after the release of the minutes from the April 26-27 meeting showed members leaning towards a potential rate hike in June. These shifting rate expectations serve as a cloud of uncertainty that hovers over both the bond and equities markets. For that reason, each piece of economic data has potential market moving potential leading into the actual June 15th rate decision.

While TLT is testing its 50-day moving average, it also has resistance at $130, $131, and $132.50 per share. Key support at $129, then $128 and $127. As for the S&P 500, resistance is noted at 2100, 2110, and 2115. Short-term support at 2095, 2084, and 2076.