Why Sentiment Favors Bulls Despite Slowing SPX Momentum

• The VanEck Semiconductor ETF (SMH) dropped 10% in the first two days of July following concerns about AI overcapacity from Meta and warnings from investor Michael Burry, while the SPX remained essentially flat
• The SPX has traded in a range between 7,500-7,620 for two months, with key support at 7,270-7,400 and resistance at the 7,530 level (10% above 2025's close)
• Put-to-call ratios among equity options traders show considerably less optimism than in May, suggesting more available buying power to break through resistance despite momentum slowdown

Summary

Market Overview:

The S&P 500 Index (SPX) is trading at 7,483.24, encountering resistance at the 7,500-7,530 level, representing a 10% gain above last year's close. Despite momentum slowing since late March, the technical and sentiment backdrop favors bullish continuation.

Key Developments:

Semiconductor Weakness:

The semiconductor sector experienced a sharp selloff to start July, with the VanEck Semiconductor ETF (SMH) losing 10% in the first two trading days. The decline was triggered by Meta Platforms' (META – 582.90) announcement of selling excess AI capacity and investor Michael Burry's bearish outlook citing overcapacity concerns. SMH currently trades at 592.29, hovering near its 50-day moving average support.

Market Breadth Strengthening:

Despite semiconductor weakness, the broader SPX remained flat during the decline, demonstrating market breadth expansion. The S&P 500 advance-decline line reached fresh all-time highs, indicating broad-based participation beyond tech leaders.

Seasonal Context:

July historically shows strong bullish seasonality, posting positive returns 80% of the time over 20 years (average gain: 2.67%) and 100% positive over the last 10 years (average gain: 3.51%).

Technical Levels:

• Resistance: 7,500-7,530, with secondary resistance at 7,620 (last month's high)
• Support: 7,400 (50-day moving average) to 7,270 (June low)

Sentiment Analysis:

Put-to-call ratios indicate significantly reduced optimism among option buyers compared to two months ago, suggesting considerable buying power remains to push through resistance levels. This contrarian indicator favors bulls despite slowing momentum in the two-month trading range.