CBOE Volatility Index (VIX) Rising – Tomorrow’s Job Report Command September’s Direction

Stocks opened steady, but are drifting lower on disappointing economic data through midday on the first day of September. The S&P 500 Index is down 11.75 points to 2159.20 and near session lows.

Early data showed Jobless Claims falling to 263,000 last week and second quarter productivity at rate of .6%. Both numbers were in-line with expectations. However, at 9:00am central time, Construction Spending printed at 0% for July and below estimates of .6%. Moreover, ISM Manufacturing Index for August was 49.4 and well below expectations of 52.2.

The S&P 500 ticked to the lows of the day on the data and remains under water into midday Thursday.

Treasury bonds are also lower, but pared some early losses on the weak ISM print. The yield on the benchmark ten-year is at 1.58% after hitting morning highs near 1.62%.

Crude oil is off 90 cents to $43.80 and gold added $2.5 to $1314.

CBOE Volatility Index (VIX) is up 1.14 points to 14.56 and trading activity in the options market is picking up a bit from several days of lackluster volume. Roughly 2.2 million calls and 1.9 million puts traded across the exchanges in the first hour. Projected volume is 15.7 million contracts and 15% above the daily average in August, which was 13.6 million contracts.

SPDR 500 Trust (SPY) Sep 221 calls, SPY Sep 23rd Weekly 221 calls, and VanEck Vectors Gold Mining Fund (GDX) Sep 30 calls are the most actives.

Looking forward, the next short-term catalyst for the equities market is likely to be Friday’s jobs numbers. Economists expect the report to show the economy adding 175,000 jobs in August and the rate of unemployed remaining unchanged at 4.9%. If the (8/5/2016) reaction to the July report is any indication, then stocks will rally on a better-than-expected reading and possibly sell-off if the numbers fall short of expectations.

Then the economic and earnings calendars are light next week after the three-day Labor Day weekend, but volumes typically pick up after the holiday, as it marks the end of the summer vacation period.

In fact, September is the seasonally weakest period for the equities market. According to the Stock Trader’s Almanac, the average change since 1950 is -.5%, which makes it the worst month for the S&P 500.

See Tradespoon’s Stock Forecast on SPDR 500 ETF Trust (SPY)

Tradespoon’s Stock Forecast on SPDR 500 ETF Trust (SPY)

Indeed, the chart above shows the SPYders starting off the first day of September at multi-week lows and, at $216.20 per share, back to levels seen just before the August 5th jobs report. Shares, which hold the same names as the S&P 500 Index (SPX), are down .5% on the week and, despite the modest .4% advance in August, at the same levels today as mid-July.

Expect the choppy action to continue, but a bearish jobs report tomorrow could potentially set up a test of support around $215 per share and the 50-day moving average. There is plenty of resistance to the upside, including yesterday’s close of $217.40, then $218.40, and the 8/15/2016 record closing high of $219.09.