The SPX closed nearly unchanged for the week again after a violent late Friday rally surged off the lows by nearly 90 points and well over 1.5% off the 5200-support level that held as a key line in sand which lined up with the 8-week MA and the highest gamma put wall level, often a floor short term. The S&P enters June off a strong month of May that saw the final week give some hope to the bears but in the end the bullish breadth divergence seen Thursday and Friday, coupled with a strong contraction in the VIX proved to be a key signal for a squeeze back higher. After 5 straight weeks higher, it should not have been surprising to see a minor dip to close the month with the MSCI index rebalancing being a key factor and some notable sector rotations. This could look completely different as a new month starts as often fresh money flows enter and resume the prevailing trend. For now, support is key and pivotal at 5200 where Friday’s low formed before the turn and burn higher. Next upside resistance is at 5300 which also is a crucial level to regain for upside momentum to return to a lower volatility positive gamma environment. The 21-day EMA sits below at 5240 and should be a good line in the sand for now while a close back under 5200 would turn uglier and target the 5075 open gap. An upside thrust higher from here should see 5400 as the next target above. I tend to lean to that scenario as June begins and the first half of the month has shown more bullish seasonality with the June triple witching expiration and a 6/19 holiday likely to keep a lid on volatility as a lower VIX provides support for stocks to grind up with less correlation.

Market Sentiment/Breadth

AAII sentiment for the week ending 5/29 showed bullish responses fell to 39.0% from 47.0% prior while bearish responses rose to 26.7% from 26.3%. Neutral sentiment jumped to 34.2% from 26.6%. The NAAIM Exposure index decreased slightly to 92.21 from 94.45 last week and is just above last quarter’s average of 84.57. Total equity fund flows for the week ending 5/22 had $-11.4 billion of outflows in equities. Friday’s close saw NYSE new highs at 119 while new lows of 38 and the 10-day MA of New High/Low Differential is still positive at +80. The percentage of SPX stocks above their 50-MA is at 50.6% while those above their 200-MA was 72.6%. NYSI Summation index is below its 8-MA for a short term sell signal. NYMO McClellan Oscillator closed at -4 after Fridays rebound and back near Neutral. The cumulative AD line bounced strong and 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 0.66. CNN Fear and Greed index is back in the Neutral zone at 48 from 53 last week. The VIX/VXV ratio closed at 0.881. This measures the spread between 1- and 3-month implied volatility, above 1.0 exhibits fear and tends to mark a low.