Anticipation of Fed Chair Janet Yellen Dominates Market Direction

Stocks opened lower, but erased the early losses and are modestly higher into midday Thursday. The S&P 500 is up 3.16 points to 2178.60 and more than 8 points from session lows.

Treasury bonds slumped in early trading as well after a report on Durable Goods for July was better-than-expected and ahead of an annual speech from Fed Chair Janet Yellen in Jackson Hole, WY Friday.

However, Treasury bonds bounced sharply through midday amid thin trading and following a weaker-than-expected read from the PMI Services Index for July.

Crude oil is up 25 cents to $47 and gold is adding to big losses from Wednesday, losing another $4 to $1325.50.

Meanwhile, CBOE Volatility Index (VIX) touched a three-week high of 14.08 Thursday morning, but is now down .15 to 13.30. Trading in the options market is a bit light. Roughly 3.3 million calls and 2.6 million puts traded through the first two hours. Projected volume is 13.1 million and 7% below the one-month daily average.

SPDR 500 Trust (SPY) September 218.5 calls, September 221 calls, Sep 9th 219.5 calls, and Sep 9th 222 calls are the most active options, driven by large ratio spread trades. On the single stock front, TEVA Sep 57.5 calls, Bank of America (BAC) Sep 16 calls, and Apple (AAPL) Weekly 107 calls are the most actively traded Thursday.

The theme Wednesday was down, down, down. Treasury bonds, crude oil, gold, and the S&P 500 were all seeing losses. Trading has turned mixed Thursday and now focus shifts to Fed Chair Janet Yellen’s speech in Jackson Hole Friday.

Treasury bonds have seen a lot of back and forth action in recent weeks amid uncertainty about the Fed’s next rate move. The chart below shows the iShares Longer-term Treasury Bond Fund consolidating into a range and now basically at the same levels today as two months ago. Trading under the ticker TLT, this ETF holds Treasury bonds that mature in 20+ years. The share price moves opposite to longer-term bond yields.

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)

While it seems unlikely that Yellen will color too much outside the lines in her speech Friday, Wednesday’s action across the equities, bonds, and commodities markets suggests that bulls might be quick to retreat on any whiff of negativity. Lack of volume, thin markets, and concerns about valuations will likely add to whippy trading.

For that reason, technical support levels take on added importance in a market clearly seeking catalysts amid lacking conviction and lackluster vigor. In the aforementioned Long-Bond ETF, support levels include $139 per share, $138 per share, and along the 50-day moving average. Look for possible resistance at $140, $141.50, and $142.25.

As for the S&P 500, support is notable at 2170, 2164, and 2150. Resistance remains at 2175, 2182, and 2190.