S&P Futures Retest 900 with Negative Market Sentiment

The S&P futures are drifting lower after the World Banks slashed its expectation for global growth.  It appears as if the futures are in for another retest of 900.  U.S. equities may be giving into their downtrend tendencies as market sentiment turns sour.  Hence, the sideways trading range may finally break with investors deciding upon a direction.  However, 900 is a tricky level, and 880-900 should prove to be a worthy near-term ally of the bulls.  Economic data continues to come in mixed and it remains to be seen whether the economic stabilization can materialize into a recovery.  There are a couple psychological factors impacting the market, particularly political tensions in Iran and North Korea.  While these political problems are certainly applying some immediate-term downward pressure, we don’t expect either to have a lasting influence unless they result in nuclear warfare or a large constraint in the supply of crude.  The largest downward force on the S&P is the fact that equities have rallied so strongly thus far this year.  As a result, equities appear overvalued and in need of a healthy pullback.  The psychological forces attacking the market today could provide the fuel for a sizeable retreat in the S&P as investor uncertainty rises.

The most disconcerting development concerning the present state of U.S. equities is the negative performance of gold and crude.  Gold has just dropped below important supports.  The precious metal has been a leading indicator for equities lately, foreboding a similar pullback in the S&P.  Additionally, crude futures have fallen beneath their first tier trend line and are trading back below $70/bbl.  Meanwhile, the EUR/USD and USD/JPY are at critical junctures while continually indicating a preference for their respective downtrends.  Altogether, the S&P’s correlations support an environment for a sizable downturn in U.S. equities.  Therefore, we maintain our negative near-term outlook on the S&P futures.  The key for the S&P in the near-term will be staying above our 1st tier downtrend line and May lows.  If these two technical defenses don’t hold, the present pullback in the S&P could pick up speed.

Present Price: 902.50

Resistances: 906.75, 914, 922, 927, 935.5

Supports: 897.50, 890, 878, 873, 864.25

Psychological: 900, 950

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