The SPX had a violent rally off new lows on Thursday hitting the large support of 3500 and rallying up to the 21 EMA resistance at 3700 before giving up about half of that gain Friday with a pullback to close the week nearly where it began at 3600 which is a large balance area on the volume profile the past two weeks. A key zone to hold above headed into October OPEX and a close back over the 8 EMA of 3640 can likely push through the 3700 level with a gap to fill still up at 3740 and then the 55 EMA overhead at 3850 a possible stretch target on the upside. With RSI showing bullish divergence and MACD trying to cross higher amid the negative sentiment the market seems to be holding tough at 3600, and the bullish engulfing candle on Thursday showed real power that might prove to be a key technical support level.

Market Sentiment/Breadth

AAII sentiment for the week ending 10/12 showed bullish responses fall to 20.4% from 23.9% prior while bearish responses were rose to 55.9% from 54.8%. Neutral sentiment rose to 23.7% from 21.3%. Optimism is falling and continuing to stay unusually low. This week’s bullish sentiment reading is among the 60 lowest readings in the survey’s history. Pessimism rose slightly after falling below 60% last week but continues to be unusually high. NAAIM Exposure index decreased to 19.84 from 38.11 and remains below last quarters average of 40.63. Lipper fund flows for the week ending 10/12 had $2.7B of outflows in equities, the 8^th straight week of outflows. Friday’s close saw NYSE new highs at 29 while new lows of 218 and the 10-day MA of New High/Low Differential is still negative at -339. The percentage of SPX stocks above their 50-MA is 11.6% while those above their 200-MA was 15.2%. NYSI and NASI Summation index both bearish below 8-MA but at historically low levels. NYMO McClellan Oscillator closed at -32 and is neutral now. Cumulative AD line is back under the 40 EMA and 89 EMA long term signal in bear mode. CBOE Equity P/C 50-day MA at 0.70 and at new highs. CNN Fear and Greed index in Extreme Fear zone at 21 from 22 last week.