Technical Market View

The SPX closed higher for the week by nearly +1.5% as the bull run continues and the typical post options expiration pullback lasted for less than a day on Tuesday when Nasdaq tech stocks saw a quick correction back to the 8 EMA and overall a positive week for breadth as internals sustained the bullish tailwinds in place and sector rotations were strong with several groups adding to the upside when Tech pulled back, the classic sign of a healthy bull market. The final week of July is now here already and the SPX is marching closer to the big 1.272% Fibonacci extension target at 6500 I have been noting as a likely target at some point in Q3. Prices now just over 100 points from that level so probabilities are starting to increase of that target being hit before any meaningful pullback towards the 21 EMA, now at 6250 and would be first support on a selloff at this point. Any close below that zone would signal increasing risk and potential to retest 6000 into August which does tend to be a weaker month of the calendar year, especially after a strong July has made a fresh high. The issue with looking for a sustained selloff here is that institutions still have not fully piled in based on exposure and sentiment metrics now back to average levels, surely not frothy. The price action in meme stocks and high beta flyers is showing exuberance but this type of action can continue longer than most think. For now it will be key to see how markets react this week after the EU trade deal was announced and key Tech earnings on the docket.

Market Sentiment/Breadth

AAII sentiment for the week ending 7/23 showed bullish responses fell to 36.8% from 39.3% prior while bearish responses fell to 34.0% from 39.0%. Neutral sentiment rose sharply to 29.2% from 21.8% showing investors are more confused than uber bullish. The bull-bear spread (bullish minus bearish sentiment) increased 2.5 percentage points to 2.7%. The bull-bear spread is below its historical average of 6.5% for the 24th time in 25 weeks. The NAAIM Exposure index fell to 81.07 from 83.69 last week, above last quarter’s average of 72.50 but now off the recent high. Total equity fund flows for the week ending 7/16 had $-303 billion in outflows in equities mostly driven by activity in collective investment trusts. The prior day’s close saw NYSE new highs at 98, while new lows at 15 and the 10-day MA of New High/Low Differential is positive at +73. The percentage of SPX stocks above their 50-MA rose 73.8% while those above 200-MA was 67.0%. NYSI Summation index is below its 8-MA for a short-term bearish signal but could easily cross back up with a strong breadth day. NYMO McClellan Oscillator closed at -2 and is Neutral short term. The cumulative AD line is still near all-time new highs above the 40 EMA short term breadth trend and above the 89 EMA long term bull signal. CBOE Equity P/C 50-day MA is at 0.56 and falling but still in a Neutral zone. CNN Fear and Greed index is in the Greed zone at 74 from 75 last week. The VIX/VXV ratio closed at 0.815, with 0.80 often a lower extreme. This measures the spread between 1- and 3-month implied volatility, above 1.0 shows fear and can mark a low.