The SPX closed lower for the week by -2.4% after being up about 1.5% into Tuesday before the midweek reversal took hold and continued selling into options expiration combined with rates staying elevated with weekend war headline risk being on the minds of investors for a second straight Friday. The market has now come back to the rising 200-day MA support of 4225 and with October OPEX passing now frees up the potential to rebound off this large zone where a double bottom can materialize if buyers defend the 4200 crucial support. A lot of put pressure that was expiring last week and pushing markets lower now is gone so barring more unexpected news developments overseas the market can bounce back to the 8 EMA at least into 4300. With the Fed meeting just 10 days away, earnings will be the main event this week and potential volatile moves setting up for the last 2 and half months of 2023. Holding above 4200 can start to see bullish tailwinds develop into November but for now will need a follow through day to close above the 8 EMA for conviction into any rally. Also potential for this next low on SPX to form an RSI bull divergence and higher low.

Market Sentiment/Breadth

AAII sentiment for the week ending 10/18 showed bullish responses decreased to 34.1% from 40.0% prior while bearish responses fell to 34.6% from 36.5%. Optimism is below its historical average of 37.5% for the fifth time in six weeks. Neutral sentiment jumped sharply to 31.3% from 23.5%. The bull-bear spread (bullish minus bearish sentiment) decreased 4.1 percentage points to –0.5%. The bull-bear spread remains below its historical average of 6.4% for the sixth time in seven weeks. The NAAIM Exposure index increased to 66.67 from 45.80 and back above last quarter’s average of 60.53. Equity fund flows for the week ending 10/18 had $-10.8 billion of outflows in equities. Friday’s close saw NYSE new highs at 4 while new lows of 401 and the 10-day MA of New High/Low Differential is negative at -145. The percentage of SPX stocks above their 50-MA is 15.4% while those above their 200-MA was 32.8%. NYSI Summation index crossed back below its 8-MA for a short term sell signal. NYMO McClellan Oscillator closed at -46 and getting closer to oversold. The cumulative AD line is below the 40 EMA short term breadth and below the 89 EMA long term bull signal. CBOE Equity P/C 50-day MA at 0.79. CNN Fear and Greed index is in the Fear zone at 26 from 29 last week. The VIX/VXV ratio closed at 0.967, which measures the spread between 1- and 3-month implied volatility, above 1.0 exhibits fear and tends to mark a low.