The SPX closed higher for the week by +1% as strength continues to see dips get bought and likely close the month of January on a positive note, boding well for the rest of the year statistically. The SPX has held above its 8-day EMA the past week and now nearly hitting the 1.618% fib extension target just above 4900 or roughly 490.50 on the SPY chart below. The extended market rally can potentially be headed for a blowoff peak move into FOMC this week that could then result in a pullback to follow. First support below would be 483 with 480 and then 477.50 a key level near the 21 EMA now. RSI continues to make a slightly lower high compared to last month, a bearish divergence but will need a close below the 8-day EMA to confirm that. With the options market pricing in larger expected move this week closer to +/- 70 points it should lead to a bit more volatility on deck with February starting off with an expansion in ranges. Any close below the 21 EMA near 477 would likely see 470 as a strong first support level while an exhaustion move to highs could target the SPX 5000 round number as a psychological zone of attraction and resulting peak short term.

Market Sentiment/Breadth

AAII sentiment for the week ending 1/24 showed bullish responses decreased to 39.3% from 40.4% prior while bearish responses decreased to 26.1% from 26.8%. Neutral sentiment rose to 34.6% from 32.9%. The bull-bear spread (bullish minus bearish sentiment) decreased 0.4 percentage points to 13.2%. The bull-bear spread is above its historical average of 6.5% for the 12th consecutive week. The NAAIM Exposure index increased sharply to 84.13 from 53.54 last week and now back above last quarter’s average of 67.81. Total equity fund flows for the week ending 1/17 had $-3.3 billion of outflows in equities. Friday’s close saw NYSE new highs at 145 while new lows of 12 and the 10-day MA of New High/Low Differential is still positive at +71. The percentage of SPX stocks above their 50-MA is 76.6% while those above their 200-MA was 73.4%. NYSI Summation index is below its 8-MA for a short term sell signal. NYMO McClellan Oscillator closed at +12 and Neutral. The cumulative AD line increased this week and is above the 40 EMA short term breadth and firmly above the 89 EMA long term bull signal. CBOE Equity P/C 50-day MA at 0.68. CNN Fear and Greed index is in the Extreme Greed zone at 77 from 70 last week. The VIX/VXV ratio closed at 0.882. This measures the spread between 1- and 3-month implied volatility, above 1.0 exhibits fear and tends to mark a low.