Bulls entered the market to post a late session rally for the 2nd day in a row, showing buyers are not backing down from adversity. The S&P futures are back in positive territory today after the U. S. released better than expected retail sales and weekly unemployment claims data. The positive retail sales number shows U. S. consumers are gaining confidence as uncertainty over the state of the economy may be easing. Though the decline in unemployment claims is encouraging, we saw a report of 601k in May only to have claims rise again. Additionally, 600k is still an abnormal level. We would like to see unemployment claims drop to the 400k area before we get optimistic concerning employment. Regardless, the bulls may have gotten the backing they need to send the S&P futures to new 2009 highs.

The S&P’s correlations are certainly helping the cause today. The Dollar is depreciating across the board and gold is popping while crude climbs toward $75/bbl. Therefore, it seems the S&P futures have the green light, so to speak. The futures just need a confirmation in volume and a jump past our 2nd tier uptrend line to make today’s move truly explosive. However, the GBP/USD, EUR/USD, and gold are all facing some near-term resistances. Hence, gains in the S&P may be limited should these correlations not make fundamental moves themselves.

Rising Treasury yields are another factor tempering gains in U. S. equities. Negatively correlated, gains in equities correspond with a decline in price/rise in yield of Treasuries. Investors are worried climbing interest rates may suffocate the economic recovery taking place. The question is whether the U. S. economy and its consumers are stable enough to deal with higher rates. Mortgage applications are dropping again in reaction, and it remains to be seen what impact this has on the balance sheets of banks. In other words, we are not out of the woods yet, and this is probably why we have seen the S&P futures move sideways lately.

Meanwhile, the S&P futures are separating themselves from our near-term downtrend line. Therefore, as long as the futures remain above the downtrend line, 900, and our 2nd tier uptrend line the medium-term uptrend is safe. 

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