Technical Market View

The SPX closed sharply lower Friday by -2.75% on the unexpected Trump tariff threats towards China but the signs of an overdue impending pullback have been building as noted recently with the frothy meme stock surges and unsustainable call skews in highflyers. SPX closed below its 21 EMA for the first time since August but the 55-day EMA just below here at 6515 was the level to look for if the trend broke as mentioned last week. SPX has its AVWAP from the August low anchored at 6533 currently as well and the former 6500 strike price level was a key Fibonacci extension on the way up which often is supported on a retest. Overall, a much-needed washout short term regardless of the reasons why and likely will setup a better buying opportunity whether this week or later in October. Options expiration this week is already here and a larger implied move in the options this week over 160 points priced in with Friday’s VIX pop. These kinds of sharp pullbacks ahead of a monthly OPEX can often produce a sneaky upside snapback in the following days which then gets sold and the prior low is retested into or after OPEX so that is a possible scenario to see if this 6500 SPX key support is defended by bulls. Any weakness in a close under 6500 would point to 6400 as next support.

Market Sentiment/Breadth

AAII sentiment for the week ending 10/8 showed bullish responses tick up at 45.9% from 42.9% prior while bearish responses fell to 35.6% from 39.2%. Neutral sentiment rose to 18.5% from 17.9%. The bull-bear spread (bullish minus bearish sentiment) increased 6.5 percentage points to 10.2%. The bull-bear spread is above its historical average of 6.5% for the first time in 10 weeks. The NAAIM Exposure index rose to 84.57 from 80.66 last week and is now back near last quarter’s Q3 average of 86.63, which is a historically higher average level. Total equity fund flows for the week ending 10/1 had $-25.3 billion in outflows in equities. The prior day’s close saw NYSE new highs at 71, while new lows at 122 and the 10-day MA of New High/Low Differential is still positive at +85. The percentage of SPX stocks above their 50-MA fell to 38.4% and making a 5-month low while those above 200-MA is at 56.6%. NYSI Summation index is still below its 8-MA showing yellow flags recently for a short-term bearish signal. NYMO McClellan Oscillator closed at -72 and is back in a nearly oversold zone short term. The cumulative AD line broke below the 40 EMA short term breadth trend and is still above the 89 EMA long term bull signal. CBOE Equity P/C 50-day MA is at 0.57 but still in a Neutral zone. CNN Fear and Greed index is in the Fear zone at 29 from 53 last week. The VIX/VXV ratio closed at 0.95, getting near the upper range. This measures the spread between 1- and 3-month implied volatility, above 1.0 shows fear and can mark a low.