S&P Falls into the 875-900 Range with Sentiment Turning Sour

FastBrokersFX 3 July 2009

The S&P futures are giving way to their downtrend lines at a critical juncture after today's data confirmed that America's employment market isn't improving with manufacturing and production.

The futures are playing with fire again, retesting the psychological 875-900 zone as the downside takes a step up in the debate between trends. Our 1st tier uptrend line and June/mid-May lows serve as what may be the last lines of defense between a minor setback and a more protracted sell-off.

While the news has been negative for the most part and sentiment is turning sour, investors may hold off on sacrificing critical supports before seeing some 2nd quarter earnings reports. We're in the midst of a holiday-shortened week, so this week's volatility will likely peak today with a slight bounce on Friday.

Correlation-wise, crude and gold are holding onto their respective June lows as investors hold their breath. The 30 Year T-Bond futures are walking along our uptrend line and appear tempted to make another short-term breakout. Meanwhile, although the Greenback is appreciating across the board, we haven't witnessed any significant technical setbacks in the GBP/USD, EUR/USD, or USD/JPY. Therefore, the overall message is that this week's economic data has certainly been discouraging, yet bulls want to wait and see how earnings season pans out before giving way to the bears.

The sustainability of global economy's recovery has been thrown into question once again, leaving the S&P futures exposed. We've seen some positive developments in housing, manufacturing and production. However, the results have been mixed while the unemployment rate is rising and savings rate climbing to a 15-year high.

Therefore, consumption is likely declining, and it will be interesting to see not only how this has impacted 2nd quarter earnings, but how corporate forecasts fare the rest of the year.

This week's news and trading activity is making a case for the downtrend. However, we will need to see a failure of our 1st tier uptrend line and June/mid-May lows before reinstating our negative outlook trend-wise on the S&P futures.

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