Will stocks continue to decline, or is this a short-term bottoming pattern?
The stock market saw a rebound on Monday, with the S&P 500 index gaining 0.39% and approaching the 5,900 level. Last week, the market retraced part of its recent record-breaking rally as uncertainty returned following economic data releases and revelations about Donald Trump's cabinet. It still appears to be a correction of the post election advance, and sideways trading is possible. This morning, the stock prices are likely to open 0.2% lower, extending the short-term consolidation.
Investor sentiment improved last week, as indicated by Wednesday’s AAII Investor Sentiment Survey, which reported that 49.8% of individual investors are bullish, while 28.3% of them are bearish.
The S&P 500 has rebounded from its October consolidation, as we can see on the daily chart.
Nasdaq 100 Holds Near 20,600
The Nasdaq 100 index gained 0.71% yesterday, rebounding to the important 20,600 level. On Friday, it had fallen below that support level, returning to its October trading range. This morning, it is expected to open 0.1% higher, as investors anticipate NVDA’s important earnings report tomorrow.
VIX: Short-Term Fluctuations
The VIX index, a measure of market volatility, was up on Friday, signaling increased fear in the market and confirming a short-term downturn in stock prices. However, yesterday, it retreated to around 15.40.
Historically, a dropping VIX indicates less fear in the market, and rising VIX accompanies stock market downturns. However, the lower the VIX, the higher the probability of the market’s downward reversal. Conversely, the higher the VIX, the higher the probability of the market’s upward reversal.
S&P 500 Futures Hover Around 5,900
On Friday, the S&P 500 futures contract extended its short-term downtrend, falling below the 5,900 level. On Monday, the futures rebounded, but this morning, they are trading slightly lower again. Support is at 5,880, marked by the previous highs, and the resistance is at 5,930-5,950.
Conclusion
Stock prices are likely to trade sideways this morning, with sentiment remaining mixed after last week’s retreat. The key question remains: Is this the start of a new downtrend or merely a correction within an uptrend?
Currently, it seems to be a downward correction following the recent rally. The market will be watching for NVDA's quarterly earnings release tomorrow after the close of the session.
In my Stock Price Forecast for November 2024, I wrote “The key question is: Will this sell-off mark the start of a medium-term downtrend, or is it merely a downward correction within an uptrend? For now, it appears to be a correction, but next week’s presidential elections could add to volatility.”
For now, my short-term outlook is neutral.
Here’s the breakdown:
- The S&P 500 has pulled back to its October highs and is trading sideways.
- The market has entered a period of increased volatility.
- In my opinion, the short-term outlook is neutral.
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Paul Rejczak,
Stock Trading Strategist