The S&P futures have peaked through previous 2009 highs in a key technical development. Meanwhile, volume is climbing to the upside, and the futures are flirting with the idea of making a confirmation move. Today would be key timing for a confirmation, or the bulls may be discouraged with near-term downward sloping consolidation ensuing. Investors are showing moderate hesitation after Morgan Stanley and Wells Fargo cast a shadow of doubt over the impressive 2nd quarter earnings season. Additionally, Britain and the EU each released disappointing industrial new orders data.

Regardless, the EUR/USD, GBP/USD, and gold are stabilizing and appear as if they could be readying themselves for another leg up. Furthermore, the 30 Year T-Bond futures are yielding a downward inclination. Hence, the correlations continue to create a supportive environment for a substantial breakout to the upside in the S&P futures. The futures are creating a new foundation in the meant-time which can help mitigate immediate-term losses.

All eyes were on Bernanke for a second day as Congress grilled the Fed Chairman. However, Bernanke didn’t reveal anything groundbreaking. On the other hand, we didn’t expect him to. Investors were hoping for guidance and plans regarding an ‘exit strategy’ from the massive injections of liquidity used to fight the economic crisis. The fear is that the spike in the money supply could result in rapid inflation down the road. While investors and analysts want an ‘exit strategy’, we believe the actions by the Fed to reduce the level of liquidity in the system will be fluid and flexible in their own right. The Fed will do what they think is appropriate at the time, testing different methods to see what the markets respond to. We are treading in unprecedented monetary waters, meaning the Federal Reserve will have to be creative and adaptive to deal with the unpredictable situation. We believe the Fed will delay any large action until they see concrete evidence of uncomfortable levels of inflation in economic data. Any action taken before this development could be viewed as premature. As far as the economy goes, Bernanke didn’t describe anything we didn’t know already. Unemployment is climbing and consumption decreasing while housing shows encouraging improvements.

Speaking of housing, the U. S. will release existing home sales along with unemployment claims tomorrow. Positive results from both of these data points could ignite a rally in the S&P futures. While uncertainty remains about the medium-term performance of the U. S. economy, 2nd quarter earnings have outperformed analyst expectations for the most part. Earnings are the immediate-term catalyst investors are watching, meaning current momentum resides in the bulls’ corner. We’re running short of near- term resistances to the upside, normally an encouraging sign for the immediate-term. As for the downside, the S&P futures have our 1st and 2nd tier uptrend lines as well as July
16 lows to fall back on should sentiment turn sour.

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