The SPX closed the week higher by +2% in a very strong start to July surpassing the options expected move for the week by nearly double for a multiple sigma move in a holiday shortened week. The dispersion trade continues to drive flows with funds selling puts in the indices such as SPY/QQQ and using those proceeds to buy upside calls in single stocks that are moving at rapid clips move than the options market is even implying week to week. The most recent example being TSLA, in the past week being up 27% on positive news from deliveries while the options market was only pricing in a fraction of that move. Stocks like AAPL, META, GOOG, MSFT all have become value mega caps now and while Semi’s take a breather, the market is shifting flows into these names soaring to new highs but also seeing wild rallies beyond their expected moves each week in the options market. The SPX continues to chug towards our bigger picture target into the 1.618% fib extension at 5638, now just 1.5% away and as seasonality is strong in early to mid-July it makes sense that level gets hit soon if not this week before or after the 7/11 CPI report. The SPX is now up about 375 points or +7.5% since the 5/31 lows that featured a bullish reversal off key support near 5200. Risk starts to increase into the end of summer naturally as seasonal flows are softer so preparing for any kind of that risk ahead of July OPEX makes sense. SPX has support at the 21 EMA near 5450 and the 8 EMA at 5505 has held the past month on dips. The first sign of downside would be a close under that line in sand. While the longer-term picture is strong, likely seeing higher highs into year end, a minor 5-7% correction into end of summer would be healthy. A 5% pullback would merely bring prices back to 5300 or just below the 55-day MA while a deeper 10% dip would get prices back to near 5000 SPX and the rising 200-day MA, unlikely for now without a signal first but surely would shake up sentiment and volatility ahead of the election.

Market Sentiment/Breadth

AAII sentiment for the week ending 7/3 showed bullish responses fall to 41.7% from 44.5% prior while bearish responses fell to 26.1% from 28.3%. Neutral sentiment rose to 32.2% from 27.2%. The bull-bear spread (bullish minus bearish sentiment) decreased 5.7 percentage points to 16.1%. The bull-bear spread is above its historical average of 6.5% for the eighth consecutive week. The NAAIM Exposure index increased sharply to 103.66 from 85.44 last week and is extended above last quarter’s average of 84.57. Total equity fund flows for the week ending 6/26 had $-7.6 billion of outflows in equities. Friday’s close saw NYSE new highs at 124 while new lows of 58 and the 10-day MA of New High/Low Differential is still positive at +33. The percentage of SPX stocks above their 50-MA is at 45.6% and still sluggish while those above their 200-MA was 65.4% and declining. NYSI Summation index is crossing above its 8-MA for a short term buy signal. NYMO McClellan Oscillator closed at +11 and back near Neutral. The cumulative AD line is still showing a divergence below highs but is above the 40 EMA short term breadth trend and still above the 89 EMA long term bull signal. CBOE Equity P/C 50-day MA at 0.63. CNN Fear and Greed index is in the Neutral zone at 51 from 48 last week. The VIX/VXV ratio closed at 0.870. This measures the spread between 1- and 3-month implied volatility, above 1.0 shows fear and can mark a low.