The SPX closed lower for the first week in over 2 months after a holiday shortened week saw prices pullback to the 21 EMA near 4700 for a much overdue but healthy retracement after the recent RSI bearish divergence, we mentioned last week played out. SPX is still in a very strong bull market uptrend that many likely will quickly forget if prices pull in a bit more to the more optimal zone of 4600 which as shown by the horizontal line on the chart below is the previous breakout level and would be strong support on a retest. The first touch of the rising 21-day EMA is often a buying opportunity and this should line up nicely for a bounce setup into the next week or two with January OPEX looming and the VIX expiration that week as well. If 4675 holds early this week then we can look for a bounce that takes prices back up to fill the gap at 4770 with momentum higher at that point likely wanting to hit the 4800 round number and potentially make that new all-time high above 4818. That new high could end up being a bull trap if breadth is sub-par and prices fading back lower after Jan OPEX would make a lot of sense. Overall, the SPX is looking like rangebound action in a wide zone is quite likely the next few months in Q1 as consolidation of the massive bull rally is ideal.

Market Sentiment/Breadth

AAII sentiment for the week ending 1/3 showed bullish responses increased to 48.6% from 46.3% prior while bearish responses decreased to 23.5% from 25.1%. Neutral sentiment fell slightly to 27.9% from 28.6%. The bull-bear spread (bullish minus bearish sentiment) increased 3.8 percentage points to 25.1%. The bull-bear spread is above its historical average of 6.5% for the ninth consecutive week and the 10th time in 18 weeks. The NAAIM Exposure index decreased sharply to 70.95 from 102.71 last week and is now back just above last quarter’s average of 67.81. Total equity fund flows for the week ending 12/27 had $-10.1 billion of outflows in equities. Friday’s close saw NYSE new highs at 55 while new lows of 17 and the 10-day MA of New High/Low Differential is still positive at +98. The percentage of SPX stocks above their 50-MA is 88.2% while those above their 200-MA was 77.4%. NYSI Summation index is crossing below its 8-MA for the first signs of a short term sell signal. NYMO McClellan Oscillator closed at -28 and Neutral. The cumulative AD line 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 0.70. CNN Fear and Greed index is in the Greed zone at 74 from 75 last week. The VIX/VXV ratio closed at 0.861. This measures the spread between 1- and 3-month implied volatility, above 1.0 exhibits fear and tends to mark a low.