The SPX closed the holiday shortened week on a strong note ending Friday back near 5950 and just above its 8 day EMA as well as the 55 day as it retested and held the anchored VWAP from the Sept lows and formed a solid double bottom with bullish divergence on RSI. This retest of the overblown Fed day freakout now has a failed breakdown setup which is one of the more bullish patterns I like to spot and with the first part of January bullish seasonality in play now as well as sentiment much lower it can see a quick rebound back over 6000. A close above this level will likely stabilize volatility and put the SPX back into a confirmed positive gamma market that can take a shot a new highs above 6100 with the next bigger resistance from a gamma perspective at 6165, being the JPM collar strike. With the stronger breadth the first two trading days of the new year also helps build confidence in the upside from here after a fairly normal retracement the past month really worked off a lot of overbought frothy behavior in the markets. Support is a clear line in sand now for risk with 5850 being a level where volatility would increase on a break below there. However as mentioned the bullish divergence in RSI and potential bullish cross in MACD setting up points to upside, along with a ton of single stocks leading higher with bullish charts especially in the Tech sector including Semi’s going into this week’s CES event and now risk on assets such as Bitcoin rebounding higher looking ready to run. Another thing most traders are not aware of is how powerful the January expiration cycle can be with all the Leap options in open interest being supportive of a run higher into that mid-January expiration as long as recent trends higher hold firm.

Market Sentiment/Breadth

AAII sentiment for the week ending 1/1 showed bullish responses fell to 35.4% from 37.8% prior while bearish responses ticked up to 34.2% from 34.1%. Neutral sentiment rose to 30.4% from 28.0%. The bullish reading of 35.4% is the lowest since 4/25 of last year and only the second reading under 36% since late 2023, showing how quickly investors withdrew bullish bias the past few weeks. The bull-bear spread is below its historical average of 6.5% for the third time in six weeks. The NAAIM Exposure index fell sharply to 64.10 from 80.39 last week and is well below last quarter’s Q4 average of 85.81. Total equity fund flows for the week ending 12/24 had $-15.3 billion in outflows in equities. Friday’s close saw NYSE new highs at 38, while new lows of 58 and the 10-day MA of New High/Low Differential is negative at -90. The percentage of SPX stocks above their 50-MA is at 24.8% after touching near 20% which is often a bottoming signal, while those above their 200-MA was 56.0%. NYSI Summation index is below its 8-MA for a short-term bearish signal. NYMO McClellan Oscillator closed at +18 and is Neutral. The cumulative AD line is rebounding but still below the 40 EMA short term breadth trend and closed just above the 89 EMA long term bull signal. CBOE Equity P/C 50-day MA is at 0.56. CNN Fear and Greed index is in the Fear zone at 32 from 34 last week. The VIX/VXV ratio closed at 0.89 and peaked above 1.1 recently, which is often a sign of a market bottom. This measures the spread between 1- and 3-month implied volatility, above 1.0 shows fear and can mark a low.