Stocks extend their consolidation as investors anticipate Powell, tomorrow’s CPI.
The stock market rebounded on Monday, with the S&P 500 gaining 0.67% as investor sentiment improved after the weekend, following Friday’s decline. Today, the S&P 500 is expected to open 0.3% lower as investors eagerly anticipate Fed Chair Powell’s testimony, scheduled for 10:00 a.m.
Investor sentiment has recently worsened, as shown by the last Wednesday’s AAII Investor Sentiment Survey, which reported that 33.3% of individual investors are bullish, while 42.9% of them are bearish.
The S&P 500 index continues to trade below the 6,100 level, as we can see on the daily chart.
Nasdaq 100 Also Higher
The Nasdaq 100 closed 1.24% higher on Monday, recovering most of Friday’s decline. Resistance remains at 21,800–22,000, while support is around 21,500, marked by Friday’s low.
Today, the Nasdaq 100 is expected to open 0.6% lower, pulling back after its yesterday’s rebound. Further consolidation seems likely.
VIX Fluctuates Above 15
The VIX index, a measure of market volatility, rebounded from 15 last Friday, reaching 16.66. It continues to fluctuate with local highs above 20 on January 27 and February 3, still indicating a lack of fear in the market.
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 Contract Drifting Sideways
This morning, the S&P 500 futures contract is pulling back after yesterday’s rebound. All eyes are on Powell’s testimony at 10:00 a.m. and the CPI data release on Wednesday. Resistance is around 6,100-6,120, while support is near 6,050.
Conclusion
Tuesday’s trading session is set to open lower for stocks, but the main event of the day will be Fed Chair Powell’s testimony at 10:00 a.m., which is likely to drive market volatility. No confirmed negative signals have emerged, but stocks continue to fluctuate following post-election rally.
On Monday, in my Stock Price Forecast for January 2025, I noted “...recent rallies have provided selling opportunities. What will February bring? The earnings season is in full swing, likely adding to volatility. Political developments are increasing uncertainty. The market's ongoing consolidation since November may be forming a medium-term topping pattern ahead of some more meaningful downward correction. However, no confirmed bearish signals have appeared yet.”
For now, my short-term outlook is neutral.
Here’s the breakdown:
- The S&P 500 is likely to continue consolidating.
- The stock market is still seeing increased volatility following the post-election rally.
- In my opinion, the short-term outlook is neutral.
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Paul Rejczak,
Stock Trading Strategist