The SPX closed the week lower by -2% after touching a new high early in the week and reversing on Wednesday, which was precisely the VIX expiration for July options and that classic midweek reversal often seen during options expiration week. For now the SPX has declined to and just below the 21 day EMA but hit key support of 5500 on Friday before trying to bounce back into the close but pinning near the big gamma strike for OPEX. The big 1.618% Fibonacci extension level of 5638 was clearly a spot to expect resistance as mentioned and we now could see a few months of market consolidation as seasonal weakness may be a driver, but also quite normal after such a strong rally. Short term conditions are oversold enough to favor a snapback bounce next week and potentially into the key earnings reports that will round out the end of July with the FOMC meeting on 7/31 a key event on deck. Resistance on a bounce comes in at 5575 and then 5600 with the open gap up at 5650. With the MACD crossing lower this week it could set up a scenario where the oversold Nasdaq bounces for a week or so and then forms a lower high which then gets sold back to retest this 5500 key support. A secondary break below would likely point to the 5375-gap fill level becoming a magnet, while the 50% retracement of the entire rally since late April comes in at 5310. It should be interesting to see where the markets are a week from now as the FOMC meeting in 10 days now could create a recipe for a reversal based on where prices land by then. The rotation into small caps from Tech large caps is a spot to focus on for continued opportunities with the Russell index structurally seeing bullish flows and likely a higher floor being built as it consolidates the breakout.

Market Sentiment/Breadth

AAII sentiment for the week ending 7/17 showed bullish responses jumped to 52.7% from 49.2% prior while bearish responses also rose to 23.4% from 21.7%. Neutral sentiment fell to 23.8% from 29.1%. The bull-bear spread (bullish minus bearish sentiment) increased 1.8 percentage points to 29.3%. The bull-bear spread is above its historical average of 6.5% for the 11th consecutive week. The NAAIM Exposure index fell to 87.94 from 93.84 last week and is above last quarter’s average of 81.70. Total equity fund flows for the week ending 7/10 had $-8.5 billion of outflows in equities. Friday’s close saw NYSE new highs at 49, while new lows of 18 and the 10-day MA of New High/Low Differential is positive at +203. The percentage of SPX stocks above their 50-MA is at 65.2% while those above their 200-MA was 75.0%. NYSI Summation index is above its 8-MA for a short term buy signal. NYMO McClellan Oscillator closed at +3 and back to Neutral after getting Overbought last week. The cumulative AD line hit new highs before pulling back but 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 0.60, new 9-month lows. CNN Fear and Greed index is in the Neutral zone at 49 from 56 last week. The VIX/VXV ratio closed at 0.963. This measures the spread between 1- and 3-month implied volatility, above 1.0 shows fear and can mark a low.