The S&P futures are consolidating after a broad-based return to risk sent the futures beyond the psychological 1050 level. Broad-based depreciation of the Dollar coupled with another breakout in gold created a supportive environment for the S&P to continue its ascent with ease. Investors have little to complain about this week since closely-watched data points such as Retail Sales and Industrial Production eclipsed analyst expectations.

However, the EUR/USD, USD/JPY, and gold are facing respective resistances and supports along with psychological levels. Since the news wires will be relatively quiet until Wednesday’s wave of EU PMI data, the S&P futures may opt to participate in a market wide consolidation as investors lock-in some profits. Despite the optimism surrounding this week’s economic data, we do notice a couple red flags investors should take note of.

TIC Long-Term Purchases registered a considerable drop and the Current Account deficit widened. The disappointing TIC figure shows foreign nations are losing interest in U. S. Treasuries and equities. Foreign support of America’s extraordinary debt creation has been a topic of concern for quite some time now, and for good reason. The drop in TIC Long-Term Purchases coincides with calls for a new monetary standard and tense trade relations between the U. S. and China. Any future disappointing Treasury auctions could easily deflate investor optimism. Therefore, the TIC number is a bit disconcerting. Additionally, the widening Current Account deficit shows the U. S. is increasing its imports. While this bodes well for consumption and supports a weakening Dollar, it remains to be seen whether the drop in the Current Account is a temporary side-effect of the cash-for-clunkers program.

Concerns aside, the S&P futures are in a good position to test the psychological 1100 level. The highly psychological 1000 level is quietly becoming an afterthought, an important development for the S&P’s near-term outlook. While we anticipate consolidation and profit taking over the immediate-term, the present lack of substantial downtrend pressure in the EUR/USD and gold bodes well for the S&P over the near-term. We can’t discern any strong technical barriers in the S&P besides the psychological 1100 level. As for the downside, the S&P futures have Wednesday lows, our 2nd tier uptrend line, and the psychological 1050 serving as technical cushions. 

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