S&P Futures Move Sideways, Investors Await Next Week’s Data

The S&P futures failed in their attempt to retest 2009 highs yesterday, opting to continue along their sideways path instead.  The S&P futures are retesting our 1^st tier uptrend line as volume dissipates due to the lack of significant economic data.  Investors did see the Prelim Univ. of Michigan consumer sentiment number today, which came in around analyst expectations.  Markets experienced a small pop in reaction to the data, but we aren’t placing much weight on the slight rise in consumer confidence.  The consumer sentiment number is still at a relatively deflated level, and it could just as easily turn south in the future.  We feel we need to see a substantial climb in consumer sentiment towards the 75 level to buck the downtrend.  However, the improvement in consumer sentiment does coincide with the climb in retail sales the U.S. released yesterday, an encouraging development.

Meanwhile, the S&P futures remain stuck in their tight wedge despite the volatility in currency and the precious metal markets.  In fact, gold just made a swift break below the neckline in our head and shoulders pattern.  While the movement could prove to be a head-fake, the present decline in gold could also be indicative of an oncoming pullback in the S&P futures due to the recent positive correlation between the two investment vehicles.  The EUR/USD is also trading within a close range of its own neckline, meaning investors could be flirting with the idea of taking profits in the S&P futures.  Therefore, investors should keep a close eye on these two correlations to see how they behave with their respective head and shoulders patterns.

Speaking of correlations, the 30 Year T-Bond futures have made a much needed pop in the past 48 hours.  Yesterday’s Treasury auctions went well, cooling fears that the Fed may need to fast track its quantitative easing program.  However, the Treasury yields are still at uncomfortable levels, so the recent decline in yield may only allay investor concern for the immediate term.  As for the immediate term, we wouldn’t be surprised to see the S&P futures close out the week within the June trading range.  We’ve had a light week of news and investors will likely rest up for the busy week ahead.

Overall, there is still a near-term downward pressure at work as indicated by the uncertainty in the Dollar and gold.  If the S&P drops below our 1^st tier trend line we could witness a brisk near-term selloff towards June lows and possibly May 7 highs.  Therefore, it seems the S&P futures are reaching a crossroads so to speak, and we expect volatility to increase next week as investors make more directional decisions.

Present Price: 939.50

Resistances: 945.75, 952, 958.25

Supports: 939.5, 933.75, 927, 918

Psychological: 950

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