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The SPX closed at fresh 3 months highs to finish the week at 4280 and above the 50% retracement level and YTD VWAP key zone on the futures. The market will enter August options expiration week on a strong note, but positive gamma is likely to give an early week follow through after closing on the highs Friday. The next logical level of interest is the 61.8% fib retrace at 4367 and is interestingly the level from where the SPX broke down from in late April. The MACD and RSI continue to point higher as momentum and relative strength in full buy mode since early July, however RSI is now at the overbought zone over 70 so something to keep in mind. Technically on a pullback the market now has strong support in the 4175 and 4050 levels as the 21/55 EMA bull cross shows a medium-term shift of trend and both moving averages sloping higher above the 4000 zone.
Market Sentiment/Breadth
AAII sentiment for the week ending 8/10 showed bullish responses rise to 32.2% from 30.6% prior while bearish responses fell to 36.7% from 38.9%. Neutral sentiment rose to 31.2% from 30.6%. Pessimism among individual investors about the short-term direction of the stock market fell to its lowest level in almost five months. Optimism rose to its highest level since late March. Optimism was last higher on March 24, 2022 (32.8%). Despite recent increases, bullish sentiment remains below its historical average of 38.0% for the 38th consecutive week. NAAIM Exposure index increased to 71.59 from 55.28 and now above last quarter’s average of 41.75 and at 3-month highs. Lipper fund flows for the week ending 8/10 had $4.4B of inflows in equities. Friday’s close saw NYSE new highs at 56 while new lows of 24 and the 10-day MA of New High/Low Differential at +5 and seeing a positive cross for first time since early April. The percentage of SPX stocks above their 50-MA is 92.4% while those above their 200-MA was 48%. NYSI and NASI Summation index both in bullish mode above 8-MA and sloping higher. NYMO closed at 72.97 and is overbought short term. Cumulative AD is above the 40 EMA and the 89 EMA long term signal has turned positive. CBOE Equity P/C 50-day MA at 0.65 and declining recently from June extremes. CNN Fear and Greed index in Neutral zone at 55 from 50 last week.
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Alerts
Fidelity Info (FIS) shares with an early breakout move Thursday of a flag with the 200-MA overhead a potential target, FIS has 7000 October $100 calls bought in open interest with 5000 of the $110 calls short. We discussed FIS in-depth on 6/1, noting FIS spoke at a BAML Conference in March outlining why the market is undervaluing shares with its premier assets and 70% of revenue is generated from software and services to clients with deep, long-term and recurring relationships while the other 30% is generated via consumer spending. Forecasts see revenues growing at a 7% CAGR and EPS 10-15% annually the next three years. FIS cited strong wins last quarter in Banking and Capital Markets and plans to raise buybacks to $6B in 2023 though also likely to be active in M&A to defend/gain market share and increase exposure to faster growing segments.
Chart
Set-Ups
Costco (COST) shares flagging in a narrow August range this month and respecting the top of monthly value area support at 540 as they closed above today and look ready to run to 558 which is an overhead VPOC that is untested from back in April when the stock made fresh all-time highs. COST has rebounded strong since the May low it made and is likely to move retail earnings reports this week. A close below 21 EMA near 530 is a good stop level.
Market
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The SPX closed at fresh multi month highs this week as the CPI report created a chase effect of buying from under-exposed investors and led to a strong move through 4200 key resistance and up to 4280 at Friday’s close. The market continues to act well and price action is healthy confirmed by breadth and internals that showed solid buy side pressure most of the last part of the week. Trend up day’s were seen multiple days this week and now with a monthly August expiration coming next week there is plenty of positive gamma that should give the market a potential melt up towards 4360 which is near the 61.8% Fib retracement of the entire 2022 decline. This will be a key test if it occurs this month and might be the spot to take some chips off the table. The VIX also continues a bleed lower and closed under 20 this week showing how powerful the IV crush has been this summer as sentiment was historically bearish to start the 2nd half of the year and now with econ data starting to show peak inflation the next real catalyst is not until the Fed’s Jackson Hole meeting at the end of the month. August seasonality tends to show strength into options expiration week mid month with that often fading by month end.
The sector leaders for the week were Oil and Gas +8.6%, Metals and Mining +8.3%, Clean Energy +10.1%, and Banks +5.5% and Retail +6.7. Laggards included Semi’s +0.7%, Biotech +0.8%, Staples 1%.
Next week the market looks towards August Options Expiration; FOMC Minutes and RBA Minutes Due Out; US Housing and Retail Sales Data; Retail earnings from WMT, HD, LOW, EL, TGT, TJX as well as reports from CSCO, AMAT, ADI, NTES, SE, KEYS
Flow
Recap/
Highlights
Options flows for the week showed Solar bulls continue to roll and adjust higher into the clean energy rally. Put sales were active in beaten up China tech like BABA, SE. Longer dated put sellers were also seen in Semi’s ON, NVDA, NXPI. Med tech names like DXCM, ABT, EW, SYK saw opening call sellers and also Oil large caps like XOM, CVX. Bull flow was seen by mid week in Homebuilders LEN, DHI, BZH and AAPL and AMZN saw massive put sales out into year end expirations. Put buyers were seen in Auto’s F and GM while the end of the week brought some put buyers into Banks like BAC, WFC but slower action to end the week.
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