Global equity markets traded flat overnight and in a very tight range as investors searched for a catalyst which would drive the market higher. Without any major economic reports today, traders are most likely going to watch the Euro for direction.
The recent flow of money back into the Euro can best be described as a minor shift in risk sentiment and its rally looks corrective in nature. The same thing can be said of the current rally in the equity markets as the two major indices and the Dow average head back toward 50% to 61.8% of the entire April to June break.
Now that these three markets have weaseled their way back to their major retracement zones, investors are approaching the rally with caution as they wait for a shift in the fundamental outlook for the markets to be the new catalyst which drives them even higher. Some analysts are beginning to question whether the market is being driven more by a lack of bad news than any real stream of good news. If this is true, then fundamentally and technically, another move down may be in the works.
For the second straight day, U.S. equity markets faltered into the close producing flat results on Thursday. On Wednesday it was concerns about Spanish sovereign issues, on Thursday investors focused on poor U.S. economic report.
U.S. equity markets opened higher Thursday morning but well off their highs after a flat trading day on Wednesday. Global markets rallied overnight after it was reported that the auction of Spanish Bonds was oversubscribed. This news helped ease concerns amongst traders who were taking a cautious approach to the long side of the equity markets after it was reported earlier in the week that the International Monetary Fund, the European Union and the U.S. Treasury had opened a $307 billion credit line for Spain.
Risk appetite rose on the news about the Spanish bond auction sending stocks higher after a lackluster night session. Sellers emerged however shortly before the opening after the government reported higher than expected Weekly Jobless Claims. This put fear into traders and encouraged a profit-taking break. Later in the morning the Philadelphia Fed announced a slowdown in manufacturing and the Conference Board said the economy would slow into the end of the year. All of this negativity caused traders to back off from the long side of the market, feeling there is better opportunity at lower price levels.
Although the main trend is up on the daily September E-mini S&P 500 chart, the market seems to be running out of steam as it nears a major 50% price level at 1122.00. Should a top develop at the current level then look for the start of a retracement to 1077.25 to 1067.75. Since there are no major U.S. economic reports today, traders are likely to turn their focus on the Euro. If it looks like investors prefer to shed risk today, then look for weakness to develop in the equity markets.
September Treasury Bonds are trading higher overnight. The rally this week is all about the weakening U.S. economy. Last week, T-Bonds were under pressure because comments from Fed Chairman Bernanke suggested the central bank may be coming close to tightening. This sentiment began to shift to up late last week following a weaker than expected retail sales report and firmed up this week following poor housing start, industrial production and confidence numbers. Due to the lack of fresh economic data today, T-Bonds may react to the movement of the stock market. A sell-off in the equity markets could trigger a flight to safety rally which may drive the T-Bonds through the last main top at 125’00, reaffirming the uptrend.
The weaker Dollar helped drive August Gold to a new all-time high overnight. In the process a new main bottom was formed at 1216.20. The overnight rally may have been triggered by traders anticipating a break in the stock market as the two asset classes continue to fight for investment Dollars. 
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