The S&P futures are experiencing slight losses after Friday’s pop on considerable buy-side volume. Friday’s movement higher lost steam as the futures were denied by our 2nd tier uptrend line. Meanwhile, the S&P futures are ignoring the rapid appreciation of the Dollar coupled with a sizable pullback in gold. Encouraging improvements in America’s employment market are countering the data and psychological setbacks in the EU and Britain last week.

However, a continued appreciation of the Greenback could limit movements to the upside due to the S&P’s usual positive correlation with the GBP/USD and EUR/USD. In the meantime, we’ll closely monitor the S&P’s correlation with the Dollar since a reversal in correlation would be an important development regarding equity analysis. The S&P futures are also ignoring an upturn in the 30 Year T-Bond futures today, showing bulls are confident in recent U. S. economic data and 2nd quarter earnings. Meanwhile, 1000 is proving to be a difficult adversary as we anticipated. The S&P’s 1000 level plays an important psychological role in the S&P’s ability to log future noteworthy gains. However, better than expected economic data from China tomorrow could help separate the S&P futures from 1000.

China will release a truckload of pricing, production, and trade balance data tomorrow. Since China has been the growth engine for the global economic recovery, tomorrow’s results should be a market mover. The more closely watched figure amid tomorrow’s releases will be China’s Industrial Production number. A reading above
11%, or previous 2009 highs, could excite bulls and result in another S&P rally. However, any setback in China’s Industrial Production data could result in uncertainty and give investors a reason to cash in some profits. We expect the S&P futures to hover at or above 1000 until China’s economic data hits the wire later on. The U. S. will release economic data of its own tomorrow, including Prelim Non-Farm Productivity and Unit Labor Costs. A combination of an outperformance in Chinese economic data and U. S. productivity could give the S&P futures enough motivation to set fresh 2009 highs.

Technically speaking, the S&P’s topside obstacles are Friday highs and our 2nd tier uptrend line. As for the downside, the S&P futures have the highly psychological 1000 level, August 7th lows, and our 1st tier uptrend line to fall back on should today’s pullback pick up momentum.

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