The S&P futures did in fact break below our 1st tier uptrend line yesterday, proceeding to retest May highs and June lows in one swoop.  Yesterday's weak long-term purchases data sent up a red flag and only exacerbated investor fear that declining foreign interest in U.S. debt could compromise the economic recovery taking place due to higher governmental borrowing costs. 

Despite the size of the pullback compared to the sideways action as of late, the futures still manage to avoid a retest of 900.  In fact, the S&P futures were edging up this morning after better than expected economic sentiment from the EU coupled with a higher than anticipated PPI number from Britain.

However, the pre-market rally halted after the U.S. released disappointing PPI data of its own, raising the fear of deflation.  Deflation indicates a slowing economy since producers must lower their prices to satisfy higher supply and declining demand, and consequently lower earnings for some U.S. corporations.  On the bright side, housing starts and building permits came in better than anticipated.

Although, the housing and building data remains at an uncharacteristically low level, essentially discounting any small progress made.  The U.S. will release its capacity utilization rate and industrial production in less than half an hour to cap the busy day.

Even though the S&P is putting up a stabilization fight, we can't forget we've seen technically significant declines from both gold and the EUR/USD.  These two investment vehicles are positively correlated with U.S. equities, and their fundamental deterioration is discouraging for the bulls. 

The S&P futures have been stuck at a crossroads for a while due to the combination of bulls buying into a global economic recovery coupled with investors taking profits due to the perception of overvalued equities.

It will be interesting to see if the S&P futures bump back into their narrow trading range to continue their sideways activity, or whether yesterday's pullback signifies a new near-term downtrend. 

We believe there is still a downward force at work due to the recent correlative behavior and the fact that equities have made such an impressive run so far this year.  In the meantime, the S&P has build up quite a few support bases and has the psychological 900 level to rely upon.  Therefore, even if the downside does pick up momentum, 900 should provide a reliable backstop.