The SPX closed the week higher by just about 1% and hitting that big long term 1.618 fib extension target of 5638 which could prove to be a pause point or start of a pullback into late summer. However, the sector rotations seen this week were fascinating as that has been long awaited and really something that we had pointed to as potentially creating a new leg higher in the bull market with breadth expanding. This kind of action can shake things up for a few weeks and overall, just oscillate the major SPX index sideways while different groups take turns leading. SPX is now 700 above the April lows that held the rising 21-week EMA near 4950 and with July OPEX now a week away as earnings season gets underway it could bring a minor pullback that would see first support near 5500 which is the 21-day EMA and a crucial gamma line in sand where things would see negative gamma flip more so. For any downside to occur the index would first need to close under the 8-day EMA at 5575 currently and subsequently need to see the VIX get off the mat and spring back to life showing some concern. Below 5500 support things would likely open the door for a quicker selloff to fill the gap down at 5375. A continued upside grind from here can target 5700 but with earnings season starting and next FOMC meeting just two weeks away, markets could reasonably just pause to catch their breadth and see more of that rotation flow into small and mid-cap stocks that are very under owned by fund managers and likely forced to allocate more into these interest rate sensitive groups ahead of the likely first rate cut being priced in for September.

Market Sentiment/Breadth

AAII sentiment for the week ending 7/10 showed bullish responses jumped to 49.2% from 41.7% prior while bearish responses fell to 21.7% from 26.1%. Neutral sentiment fell to 29.1% from 32.2%. The bull-bear spread (bullish minus bearish sentiment) increased 11.8 percentage points to 27.5%. The bull-bear spread is above its historical average of 6.5% for the 10th consecutive week. The NAAIM Exposure index fell to 93.84 from 103.66 last week and is above last quarter’s average of 81.70. Total equity fund flows for the week ending 7/2 had $-14.7 billion of outflows in equities. Friday’s close saw NYSE new highs at 306, the highest since March, while new lows of 6 and the 10-day MA of New High/Low Differential is positive at +100. The percentage of SPX stocks above their 50-MA is at 70.2% after the surge this week while those above their 200-MA was 74.8% and declining. NYSI Summation index is above its 8-MA for a short term buy signal. NYMO McClellan Oscillator closed at +69 and back near Overbought. The cumulative AD line rocketed higher this week to new highs and is 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 0.62. CNN Fear and Greed index is in the Greed zone at 56 from 51 last week. The VIX/VXV ratio closed at 0.867. This measures the spread between 1- and 3-month implied volatility, above 1.0 shows fear and can mark a low.