The SPX was weak after the CPI report Tuesday and retested the 3900 support into options expiration but slipped below Friday before forming a bullish hammer candle just below the lows of the month. A potential short term oversold bounce can retrace above 3900 now up to at least the 8 EMA at 3950 and on follow through the 21 EMA comes in near the key 4000 round number resistance level. The SPX clearly is struggling to sustain more than a bounce since the August highs but also a small bullish divergence formed on RSI as shown below on the recent low and with FOMC day this week it could create a setup for a short covering rally that has been common with these post options expiration weeks. A slide lower however would quickly point to the open gap filling near 3800 from July.

Market Sentiment/Breadth

AAII sentiment for the week ending 9/14 showed bullish responses rise to 26.1% from 18.1% prior while bearish responses fell to 46.0% from 53.3%. Neutral sentiment fell to 27.9% from 28.7%. The results show a large reversal from last week. Pessimism dropped while optimism jumped. Despite recent increases, optimism remains below its historical average of 38.0% for the 43rd consecutive week. NAAIM Exposure index increased to 33.86 from 27.33 and still below last quarters average of 41.75. Lipper fund flows for the week ending 9/14 had $12.7B of outflows in equities, the third straight week of at least $10B of outflows. Friday’s close saw NYSE new highs at 13 while new lows of 362 and the 10-day MA of New High/Low Differential at -63. The percentage of SPX stocks above their 50-MA is 26% while those above their 200-MA was 27.6%. NYSI and NASI Summation index both bearish below 8-MA. NYMO McClellan Oscillator closed at -51 and is back to near short term oversold. Cumulative AD line flipped lower and back under the 40 EMA and 89 EMA long term signal. CBOE Equity P/C 50-day MA at 0.65 and still quite high. CNN Fear and Greed index in Fear zone at 36 from 44 last week.