The S&P futures are running from our neckline, or 1st tier uptrend line, in reaction to upbeat earnings from Intel coupled with encouraging economic data. The futures have eclipsed our 2nd tier downtrend line in the process, setting the S&P futures up for a retest of July highs. While CPI came in line with analyst expectations, industrial production and the empire state manufacturing index made noticeable improvements. The empire index is almost positive for the first time since August 2008, and industrial production has returned to a reasonable level after large contractions earlier in the year.

Meanwhile, the S&P’s correlations have logged considerable gains. The EUR/USD, GBP/USD, and gold have all made sizable movements to the upside today. Additionally, the 30 Year T-Bond futures are sinking quickly on heavy volume. Therefore, investors are dipping their toes back into the water to check if it’s warm. Though investors haven’t jumped in, the fundamentals are suddenly tipping in favor of the bulls. However, even though a declining 30 Year is normally a positive sign for equities, investors should keep an eye on yield. If yield rises too quickly, fears of higher rates dampening the recovery could resurface. The next tests for the S&P futures will be July highs and our 2nd tier uptrend line. From here, it will be interesting to see how the S&P interacts with June consolidation and the psychological 950 level.

Attention will return to China late Wednesday as it releases key economic data including GDP, industrial production, CPI, FAI, and PPI. Analysts are expecting GDP to zoom towards 7.8% due to the apparent success of China’s stimulus package. Additionally, investors will be looking for industrial production growth to improve by six basis points to 9.5%. Furthermore, CPI is expected to remain relatively unchanged at -1.3%. While the GDP estimate looks about right, we believe industrial production and CPI may outperform analyst expectations since the predictions seem modest in light of such a swift recovery in GDP.

Should the economic indicators from China outperform, this could provide another large boost to the S&P futures since the economic recovery will look brighter. On the other hand, disappointing data from China could have the opposite effect. While we are turning positive on the S&P futures trend-wise, they need to break through distance themselves from the aforementioned near-term barriers. However, the downtrend is still hanging around, and shouldn’t be forgotten until we see a large confirmation in volume to the upside. 

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