4-26-16 – Stay savvy on current market trends.

April 26, 2016
By Vlad Karpel

Stocks are trading mixed in wait-and-see action ahead of Apple’s (AAPL) earnings and the FOMC rate announcement. The S&P 500 has traded in an 11-point range and is up 1.71 points to 2089.50.

The slump in Treasury bonds continues and the yield on the benchmark ten-year, which moves opposite to price, is moving to one-month highs north of 1.93%.

Crude oil is up $1 to $43.70 and gold gained $3 to $1243.

On Wall Street, Energy (XLE) is the best gainer as crude oil bubbles higher. Financials (XLF), Basic Materials (XLB), and Industrials (LXB) are also seeing strength. Tech (XLK) and Healthcare (XLV) are seeing relative weakness.

CBOE Volatility Index (.VIX) is up .05 to 14.13 amid relatively light volumes in the options market. 2.8 million calls and 2.4 million puts traded across the exchanges through the first two hours. Projected volume of 12.4 million contracts for the day is 15% shy of the one-month daily average.

Nearly 100,000 Jun 31 calls on GE have traded, including a seller of 70,000 contracts at 61 cents per contract and probably a covered call writer selling premium against an existing stock position. Similarly, more than 58,000 AT&T (T) Jun 40 calls traded. IShares Taiwan Fund (EWT) May 13 puts are the third most active options today after a 50,000 block traded at 10 cents per contract.

Apple options are also actively traded ahead of earnings after the closing bell. 185,000 calls and 161,000 puts so far. The stock is down 43 cents to $104.65 in cautious trading, as the company is expected to post its first revenue decline in 51 quarters. Meanwhile, earnings per share are expected to be $1.99, down from $2.33.

Yet, Apple shares have made a strong run over the past few weeks ahead of the results and, as with many companies, investors are possibly looking beyond the current state of affairs. Indeed, the market’s resilience in the face of some disappointing results from names like Google and Microsoft last week suggests that investors are looking beyond the first quarter earnings dip and to the prospect of growth in the second half of the year – fueled in part by higher oil prices and dollar weakness.

Apple will certainly test those convictions after the closing bell today if their guidance for future quarters is below expectations.

Then focus turns to the FOMC meeting Wednesday afternoon. No changes in policy are expected, but market participants will be scrutinizing the post-meeting statement for indications regarding the outlook for the June meeting.

(See Tradespoon’s Stock Forecast on Treasury Bond Yields)


(Tradespoon’s Stock Forecast on Treasury Bond Yields)


As we can see from the chart above, the yield on the benchmark ten-year Treasury bond, as measured by the TNX index, has been climbing in recent weeks ahead of the Fed meeting and is higher again today despite a string of bad economic data this week on housing, consumer confidence, and durable goods. The decline in bonds, higher yields, is also part of a larger trend in global government debt markets, with yields spiking across the Eurozone as well.

Therefore, in addition to Apple’s earnings, the FOMC meeting is the next market moving catalyst and further gains in bond yields could potentially thwart any additional rallies in the equities market, as combination of higher short-term rates (June Fed hike) and longer-term rates (bond yields) would potentially reshape market expectations regarding the outlook for financial markets in the second half of 2016.

Until then, the trend is your friend. Specifically, the churn continues with investors rotating among market sectors each day based on the latest moves in crude oil and earnings results.

In the near-term, the S&P 500 is facing resistance at 2,096, 2,100 and then 2,110. 2,090, 2077, and 2,065 are areas of short-term support.

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