2-23-16 – Where is the market going?

February 23, 2016
By Vlad Karpel

Stocks slipped at the opening bell and the decline is gathering some momentum into midday Tuesday. After a 27.72-point rally Monday, the S&P 500 is down 21.90 points to 1923.60 and one point from session lows.

Treasury bonds were lower in early trading, but have since strengthened amid weakness in equities and mixed economic data. While January Sales of Existing Homes rose at the second highest pace since 2007, a separate report on February Consumer Confidence fell to 92.2, from 97.8 in January, and a seven-month low. The yield on the benchmark ten-year, which moves opposite to Treasury bond prices, was more than 1.8% this morning, but has since eased to 1.73%.

Crude oil is off $1.54 to $31.85 and erasing the gains tallied Monday. Gold has added another $15 to $1225.

On Wall Street, eight of ten market sectors are lower, led by Energy (XLE), Basic Materials (XLB), and Industrials (XLI). Utilities (XLU) and Telecomm (IYZ) are seeing modest gains.

Meanwhile, CBOE Volatility Index (VIX) is up 1.42 points to 20.80 amid rather light volumes in the options market. Roughly 2.8 million calls and 2.9 million puts traded across the exchanges through the first two hours. Projected volume for the trading session is 13.7 million and 3 million less than the one-month daily average.

SPDR 500 Trust (SPY) Mar 190 puts are the most actives so far, with more than 44K traded. Barrick Gold (ABX) Jul 18 and Jan 22 calls have both traded 40K as an investor opened a large bullish position in both strikes. Microsoft (MSFT) Mar 52.5 calls are the next most actives with volume of 31.8K.

On the technical front, today’s pullback in the S&P 500 is not a huge surprise after the 6.4% rally from February 11th lows. Monday’s highs of 1945.5 also coincide with the Jan 12th and Feb 1st resistance. Meanwhile, CBOE Volatility Index, which had touched a 2016 closing high on 2/11, was within a hair (.04 points) of a fresh 2016 closing low yesterday.

Suffice it to say, that the equities market was possibly short-term overbought heading into today’s trading session after the six-day 116-point S&P 500 rally, which retraced 41.6% of the 281 points lost from 11/3 to 2/11. While 1945 to 1950 range is obvious resistance, a break above the 1970 level would be encouraging. However, not until 2000 (and 61.8% retracement of recent losses), will the longer-term downtrend be negated.

On the downside, there is support at today’s lows near 1925, then 1910 and 1900.

Volatility continues, on both the ups days and down days. Crude oil is an important catalyst for equities and the moves in the commodity have certainly been unpredictable lately. Weekly Inventory Data Wednesday could drive the next move.

On the economic front, the calendar is light Wednesday, but Jobless Claims, Home Sales, and Durable Goods will set the tone for trading Thursday before GDP numbers print Friday. Then another round of data is due on the first week of March, including monthly jobs. In summary, there are ample reasons to expect the volatility to continue in the week ahead.

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