Will stocks continue their uptrend and reach the record highs of early December?
The S&P 500 index opened higher on Thursday but closed 0.21% lower after moving sideways, following its recent rally. On Wednesday, the market rallied in a reaction to the CPI release. Today, the S&P 500 is expected to open 0.6% higher as sentiment improves ahead of Donald Trump’s inauguration on Monday and the long holiday weekend.
Investor sentiment worsened, as shown by Wednesday’s AAII Investor Sentiment Survey, which reported that only 25.4% of individual investors are bullish, while 40.6% of them are bearish.
The S&P 500 index rebounded from its November 6 (post-election day) daily gap up on Monday, as we can see on the daily chart.
Nasdaq 100 Pulled Back Toward 21,000
The Nasdaq 100 lost 0.69% on Thursday, retracing a part of its 2.3% advance from Wednesday. It continues to fluctuate within a consolidation phase following a rally that began in August. Today, the Nasdaq 100 is expected to open 1.0% higher, rebounding once again from the 21,000 level.
VIX Stayed Above 15
On December 18, the VIX index, a measure of market volatility, surged to 28.32, its highest level since early August. After dropping below 15 in late December, the VIX rose again, and on Monday, it reached a high of 22.04. On Wednesday, stock prices rally pushed the VIX towards the 16 level, indicating reduced fear in the market, and yesterday, it dropped further to 15.64.
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 Crosses 6,000 Again
This morning, the S&P 500 futures contract is trading above the 6,000 level, retracing its Thursday’s weakness. Resistance remains between 6,000–6,020, with the next level near 6,050, marked by recent highs. For now, the market continues to extend its consolidation.
Conclusion
The stock market is expected to begin today’s session on a positive note, retracing Thursday’s pullback and potentially reaching new local highs. Sentiment is improving ahead of the long holiday weekend, Donald Trump’s inauguration on Monday, and the upcoming quarterly earnings season.
Last Monday, in my Stock Price Forecast for January 2025, I wrote that “the stock market is poised for continued fluctuations following the post-election rally in November. Although the S&P 500 dipped by 2.5% last month, this appears to be just a correction of November’s gains.
Will the market resume its uptrend and reach new record highs? This appears likely at some point, driven by growing optimism ahead of Trump’s upcoming inauguration on January 20. However, rallies may provide selling opportunities, leading to a medium-term consolidation phase.”
For now, my short-term outlook is neutral.
Here’s the breakdown:
- The S&P 500 is likely to resume its short-term uptrend ahead of the long holiday weekend and the presidential inauguration on Monday.
- 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