The S&P futures are reversing course Tuesday after existing home sales data came in shy of analyst expectations. Since the downfall of the U. S. housing market is at the core of the economic crisis, any discouraging numbers in the housing sector can have a considerable impact on market activity.

The sluggish performance of existing home sales is likely a direct result of the recent decline in Treasury futures and corresponding climb in yield and mortgage rates. Consequently, investors perceive the quantitative easing undertaken by the Fed may not produce the desired result. Conversely, declining U. S. equities are sending the 30 and 10 year Treasury futures higher, lowering yield and giving a little boost to the outlook of future home sales.

 Hence, the U. S. economy seems to be performing a balancing act which is now highly dependent on the performance of U. S. Treasuries. Perhaps this is part of the reason why analysts predict a slow recovery for the U. S. economy.

Meanwhile, the S&P futures are gaining momentum to the downside and volume is rising in stride. Therefore, it appears the present downturn in U. S. equities has legs. The next key for the S&P futures will be the ability to hold onto the lower end of May's trading range.

If these lows don't hold, a lot of the progress made by the S&P over the past couple months could be wiped away. Therefore, the next 24-48 hours could prove to be a critical time for the S&P's near-term direction. Though the GBP/USD and EUR/USD have experienced encouraging support today, gold and crude have made discouraging technical retracements.

Furthermore, the USD/JPY appears to be headed towards our 1st tier uptrend line while the 30 year T-Bond futures gain momentum to the upside. Hence, the S&P's correlations enhance our negative near-term outlook for U. S. equities.

Investors are anxiously awaiting new home sales data tomorrow as well as the result of the most recent Fed meeting. Investors will be paying close attention to any outlook provided by Bernanke concerning the outlook for U. S. inflation as well as the Fed's plans for its current quantitative easing initiative. While we don't expect much change in the Fed's plans and cautiously optimistic economic outlook, Bernanke's speech could still be a market mover.

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