Market observers lamented tepid trading volume throughout last week in several rather uneventful sessions. However, if that was the only “bad news” the market had to offer, we would gamble that most still scarred investors whom recall the European/Euro driven equity sell-off this time last year, feel rather well thus far as we head into the third trading week of August.

The SPX actually surged impressively on Friday to reverse early morning weakness and closed with a 1405 handle. Absent last week were any major market moving statements that generally come out of Europe via ECB representatives, and we are also in a lull in terms not being in earnings season, so given the complacency that exists currently in the market (VIX closed on Friday at $14.74 and at its lowest levels since April), no news is good news as seen by last week’s activity. [VIX Keeps Falling Despite Rally Doubts]

From a technical standpoint, our market technician David Chojnacki pointed out last Friday that 1405 remains an area of technical resistance for the SPX (and thus we closed there to end the week), and there is support below at 1395 and 1388, along with more formidable support down at 1375 (if we were to get there). Recall that the 1375 level was important resistance before the market began to break out at the beginning of this month. The SPX scenario over the past few weeks in early August is a classic example of “old resistance becomes new support” in terms of technical analysis patterns.

Options trading was rather light as were volumes in underlying ETFs last week, with the presence of protective put buyers in small cap equities, via puts options in IWM (iShares Russell 2000), but this activity is generally interpreted as expected and quite normal given the relatively depressed levels of the VIX itself, and portfolio managers looking to lock in recent gains and perhaps purchase what looks like “inexpensive” portfolio protection. Late week call buyers did emerge as well, in ETFs including XLI (SPDR Industrials), EFA (iShares MSCI EAFE) and EEM (iShares MSCI Emerging Markets), suggesting that these market participants are looking for additional upside in equities heading into the end of the summer and going into the fall season.

Speaking of Emerging Markets, VWO (Vanguard Emerging Markets) was one of the top fund flows leaders last week in terms of attracting new assets as the ETF reeled in more than $400 million. IWM (iShares Russell 2000) led all ETFs in terms of inflows, with roughly $700 million entering the fund. XLE (SPDR Energy), QQQ (PowerShares QQQ Trust), and XLI (SPDR Industrials) were other leaders on the equity side in terms of inflows last week, collectively accumulating about $1.5 billion. Despite the healthy close of the SPX last week solidly above the 1400 level however, we still see institutional accumulation of fixed income products.

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