Stock prices rebounded, but was it a reversal or just an upward correction?
My speculative short position in S&P 500 futures contract, opened on July 9 at 5,636 was closed at a stop-loss (stop-profit) level of 5,551 yesterday. Overall, I gained 85 points, or 1.5% of the contract value.
Stock prices bounced yesterday, with the S&P 500 index breaking above its short-term trading range and closing 1.58% higher. However, the market closed well below its daily high of 5,551.51. Nevertheless, stocks retraced a significant portion of their recent declines following the earnings and economic data releases and the FOMC Statement. This morning, the index is likely to open 0.3% higher, with investors waiting for key earnings reports from AAPL and AMZN after the session closes.
Investor sentiment improved slightly, as indicated by yesterday’s AAII Investor Sentiment Survey, which showed that 44.9% of individual investors are bullish, while only 25.2% of them are bearish – down from 31.7% last week.
The S&P 500 index broke above its week-long consolidation yesterday, as we can see on the daily chart.
Nasdaq 100 Gained Over 3%
The technology-focused Nasdaq 100 index broke out of its 18,750-19,250 trading range, gaining 3.01% and reaching a local high of 19,426.62 yesterday. It was led higher by rebounding big-tech stocks, including NVDA, which gained almost 13% in a single day. This morning, the Nasdaq 100 is likely to open 0.4% higher as sentiment remains elevated ahead of the earnings releases from AAPL and AMZN.
VIX Pulled Back to Below 16
The VIX index, a measure of market fear, has been hovering around the 12-13 level since May. Last Thursday, it reached as high as 19.36 following recent advances fueled by the decline in stock prices. Then, it fluctuated between 17-18, and yesterday, it pulled back to a local low of 15.71, indicating less 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.
Futures Contract Rallied to Around 5,600
Let’s take a look at the hourly chart of the S&P 500 futures contract. It broke above its recent trading range yesterday, crossing the 5,530 level. It then reached a local high of around 5,597, retracing most of last week’s Tuesday-Wednesday declines. The resistance level is now at 5,599-5,620, and the support level is at 5,530, marked by recent highs.
Conclusion
Last Friday, I wrote: “This week’s sell-off raises questions: Was it just a correction? Or was it the beginning of a downtrend? Seasonal patterns suggest that the low is likely to happen in October, but the future does not always follow the past. For now, it looks like a downtrend, and in the short term, an upward correction may occur.”
Today, the market is likely to open higher, but it may face short-term uncertainty and fluctuations following yesterday’s rally. Profit-taking is likely at some point, given ongoing concerns about company valuations and geopolitical risks.
My speculative short position in S&P 500 futures contract, opened on July 9 at 5,636 was closed at a stop-loss (stop-profit) level of 5,551 yesterday, gaining 85 points or 1.5% of the contract value.
My short-term outlook is now neutral.
Here’s the breakdown:
- The S&P 500 index rebounded after its recent sell-off, but this might have been just an upward correction within a downtrend.
- Investors are waiting for quarterly earnings releases from AAPL and AMZN, among others.
- In my opinion, the short-term outlook is neutral.
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Thank you.
Paul Rejczak,
Stock Trading Strategist