The SPX closed nearly unchanged for the week but closed strong Friday into the long weekend right back at the 5300 key strike level that has been a magnet of late. This level was breached on Thursday for a short time as the market saw some surprising volatility even with NVDA staying strong, up 10% after its earnings report. The other event Thursday was PMI data sending markets into a risk off mode but overall, largely may have been some unwinding of volatility as VIX expiration passed on Wednesday as well. For now, the line in sand should be the 5260 level which is near last weeks low. Holding above SPX 5300 into month can likely see a push back to the high of 5340 with the upside target now being 5400 if strength ensues. The market has a window of positive seasonality still into late May and early June with the slower dull market action also decreasing volatility. Traders have been spoiled the last 6 months with the strong trending bull market rally that came off extreme bearish sentiment in October but now as catalysts dry up and summer trading volumes enter the picture there is an increasing likelihood that a trading range develops which could see the SPX mark time between 5200-5400. The collapse in the VIX also suggests this as a probable outcome as realized volatility contracts further and thus reducing expected move ranges. The past week of consolidation and one day of selling already brought the NYMO oscillator down quite a bit and RSI back near 60 to work off overbought conditions. Sector rotations are the hallmark of an expanding bull market and a sideways summer range sustaining above the 55 day MA while new stocks and groups contribute would not be uncommon.

Market Sentiment/Breadth

AAII sentiment for the week ending 5/22 showed bullish responses rise to 47.0% from 40.9% prior while bearish responses rose to 26.3% from 23.3%. Neutral sentiment fell to 26.6% from 35.9%. The bull-bear spread (bullish minus bearish sentiment) increased 3.1 percentage points to 20.7%. The bull-bear spread is above its historical average of 6.5% for the third time in six weeks. The NAAIM Exposure index increased slightly to 94.45 from 89.25 last week and is just above last quarter’s average of 84.57. Total equity fund flows for the week ending 5/15 had $-11.2 billion of outflows in equities. Friday’s close saw NYSE new highs at 101 while new lows of 41 and the 10-day MA of New High/Low Differential is positive at +141. The percentage of SPX stocks above their 50-MA is at 49.6% while those above their 200-MA was 73.0%. NYSI Summation index is crossing below its 8-MA for a short term sell signal. NYMO McClellan Oscillator closed at -20 and back near Neutral. The cumulative AD line is still above the 40 EMA short term breadth trend and above the 89 EMA long term bull signal. CBOE Equity P/C 50-day MA at 0.65. CNN Fear and Greed index is back in the Neutral zone at 53 from 65 last week. The VIX/VXV ratio closed at 0.842. This measures the spread between 1- and 3-month implied volatility, above 1.0 exhibits fear and tends to mark a low.