5-5-2016 – Where is the market going?

Stocks opened modestly higher and are trading in mixed fashion Thursday. After a two-day 30-point skid, the S&P 500 has traded in a narrow 9-point range and is up 5.85 points to 2056.97.

Energy (XLE) is the best performing sector after crude oil gained $1.30 to $45.10. Tech (XLK), Financials (XLF), and Healthcare (XLV) are also higher. Telecomm (IYZ) and Utilities (XLU) are seeing relative weakness.

Earnings results are also mixed, with Alibaba (BABA) and Kraft (KHC) seeing notable strength, but Merck (MRK) and Tesla (TSLA) trading lower in the wake of their respective reports.

Treasury bonds are little changed after several days of gains heading into monthly jobs numbers Friday morning. The ten-year saw a modest lift this morning after initial jobless claims came in at 274K for last week and about 15K more than expected. However, the gains were short-lived and now the tone is wait-and-see. The ten-year yield remains near 1.78%.

Gold is up $4 to $1278.5 and the dollar continues to rebound from multi-month lows set Tuesday.

In the options market, CBOE Volatility Index (.VIX) is down .14 to 15.91 and Alcoa (AA) Jul 11 and Oct 12 calls are the most actives, with more than 60,000 traded in each, driven by a large spread trade. An investor was selling the Jul 11s and buying the Oct 12s, which appears to be rolling a bullish position out three months and up one strike.

VIX May 13 puts, SPDR 500 Trust (SPY) Weekly 205 puts, and Weatherford (WFT) May 6.5 calls are among the most actives Thursday as well.

Overall volumes are light. Approximately 2.6 million calls and 2.4 million puts traded across the exchanges. Projected volume for the day is less than 12 million and nearly 25% below the one-month daily average.

Light volumes and narrow trading reflect investor uncertainty and a certain lack of conviction, as the S&P 500 tests its 50-day moving average (chart below) and as the market suffers loss in May after the lackluster performance in April.

Looking forward, a monthly jobs report Friday morning is likely to be the next major catalyst for stocks and bonds. The unexpected bump in today’s jobless claims report along with yesterday’s disappointing reading from ADP’s private sector report (an increase of 156K jobs), likely tempered expectations a bit. As of this writing, economists expect tomorrow’s report to show an increase of 207K payrolls and the rate of unemployed remaining unchanged at 5%.

Given recent concerns about the global economy reflected in falling bond yields, lackluster action in the S&P 500, and weakness in the metals, market participants are probably looking for an in-line number or a better-than-expected payroll report before sticking their necks out too far in the equities market.

From there, focus turns to the Mother’s Day weekend and a light economic calendar in the week ahead. The pace of earnings reports will diminish as well. Therefore, action in the commodities markets could again be the key driver for the broader market in the days ahead.

In that respect, the gains in the energy sector Thursday are fueling modest gains for the S&P 500, which has support near 2,050, 2,044, and the 50-day moving average. Resistance is evident at 2,065, 2,081, and 2,100.