The S&P futures are dangling beneath our 2nd tier uptrend line with investors taking in news from all different angles. The futures are also trading right at July highs, which we stated would be the next test to the upside. Starting with the Far East, China reported in line GDP and better than expected industrial production as we anticipated. With exports and manufacturing damaged, China has been injecting massive amounts of liquidity into infrastructure projects, more than making up for the losses encountered by new domestic demand for cement and steel.

However, CPI and PPI actually came in below analyst expectations, raising a cautionary flag. One would expect inflation, not deflation with improvements in GDP and production. The pullback in prices is a bit disconcerting and shows China’s economic recovery may be powered by artificial stigma. Regardless, the upbeat GDP and industrial production numbers help keep the S&P’s new positive momentum intact.

The U. S. released key economic data of its own today, which also sends a mixed message. Unemployment claims registered a large decline for the 2nd straight week, certainly a positive development. However, a negative Philly manufacturing index number offsets yesterday’s improvement in the Empire manufacturing index. Furthermore, a cause for concern is the negative TIC long-term purchases data. Though not fronting the headlines yet, a decline in the TIC number could reignite fears that foreign central banks are losing interest in America’s Treasuries. The data is particularly disconcerting since China just reported a record increase in its reserves, indicating China may be following through with its threat to diversify new reserves from the greenback and U. S. Treasuries. This would explain the swift pullback in the 30 Year T-Bond futures so far this week. Outside of mixed economic data 2nd quarter earnings reports continue to outperform analyst expectations. Corporations are faring better than anticipated as they benefit from preventative cost-cutting measures.

The S&P futures continue to distance themselves from our 2nd tier downtrend lines, 1st tier uptrend line and the psychological 900 level. Additionally, although we haven’t witnessed abnormal volume to the topside, buy-side volume has been solid. The EUR/USD, GBP/USD, and gold have made strong moves to the upside as well while the 30 Year T-Bond futures head south. Therefore, most of the S&P’s correlations are supporting the breakout in U. S. equities. However, crude futures continue to bounce around the psychological $60/bbl level and have failed to participate in the S&P’s recent run. Hence, not all of the S&P’s correlations are on board for the ride just yet. The S&P’s near-term barriers are July highs, our 1st tier uptrend line, and the topside of June’s trading range. If the S&P can climb through the first two obstacles a retest of June highs and the psychological 950 level seems imminent. As for the downside, the S&P futures have Wednesday lows, our 2nd tier downtrend line, and the psychological 900 level to fall back on.

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