The S&P futures were slammed on Friday as Prelim GDP came in far below analyst expectations.  To make matters worse, Citigroup crashed nearly 40% on the news the U.S. government will convert most of its preferred shares to common stock, thereby diluting shareholder equity.  Bank of America followed suit, falling a whopping 26%. 

Even though Bank of America remains afloat, the nationalization of Citigroup seems imminent.  With its stock trading at $1.50/share, investors are pricing the company for bankruptcy.  Seeing as the bankruptcy of Lehman Brothers resulted in a catastrophic freeze in the credit markets, the government will likely need to step in and finish the job as far as nationalization is concerned.  With the S&P futures closing beneath 2008 lows, we could witness a massive selloff to the downside in the near-term.  The futures are already trading down 2.2% in Monday’s pre-market. 

The U.S. economy is slowing faster than expected, and the global economy is following suit.  Due to the interconnectivity of the global economy, as one domino drops the rest come crashing down, perpetuating the economic contraction in the around the world.  The EU and Britain are experiencing another wave of troubles in their respective financial industries with their largest banks reporting disappointing earnings and searching for ways to raise fresh capital.  Furthermore, the major economies of Eastern Europe continue their rapid deterioration, pulling down the EU banks with them.  It’s hard to find a bright spot in the U.S. 

However, data released this morning showed U.S. spending increased while the Core PCE Price Index came in line.  Investors are now waiting on the ISM Manufacturing PMI to get an idea of how bad America’s manufacturing sector is.  With the other major economies contracting, it’s hard to believe demand for exports will provide any boost for U.S. manufacturing.  Correlation wise, Crude futures are dropping below our 2nd tier downtrend line as our uptrend line meets an inflection point. 

Additionally, the 30 Year T-Bond futures are walking upwards while Gold bounces off our 1st tier uptrend line.  Hence, all of our correlations are pointing towards a continued selloff in U.S. equities.  Meanwhile, the S&P futures remain well below our near-term downtrend line, giving us little reason to be positive trend wise. 

However, there is a positive note in the fact the S&P futures should find near-term psychological support at the 700 level.  Fundamentally, we find resistance of 724 with fresh 2nd tier and top-end hanging at 731.75 and 738.75, respectively.  To the downside, we see support of 716.75 with 2nd tier and bottom-end sitting at 711 and 700, respectively.  The S&P futures are currently trading at 718.75.

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