Will stock prices continue to rise in December despite some overbought conditions?
Stock prices advanced on Friday, as investor sentiment improved during the long holiday weekend. The S&P 500 index closed 0.56% higher, reaching a new record high of 6,044.17. However, the question remains: will the market continue higher, or is it nearing a reversal? This morning, the index is set to open unchanged, potentially consolidating in a flat correction of the uptrend.
Investor sentiment has weakened, as shown by last Wednesday’s AAII Investor Sentiment Survey, which reported that 37.1% of individual investors are bullish, while 38.6% of them are bearish - an increase from 33.2% the previous week.
The S&P 500 continued its uptrend last week, as we can see on the daily chart.
S&P 500: Another Week of Gains
The S&P 500 gained 1.06% last week, extending its prior advance of 1.7%. It retraced recent declines, a correction of the post-election rally. It still appears to be a consolidation following that rally.
The key medium-term support level remains around 5,700, marked by previous lows.
S&P 500: November Rally
In November, the S&P 500 index rallied by 5.73%, driven by the presidential election outcome. The new record highs confirm the long-term uptrend, but the market may be approaching a peak, potentially leading to a more meaningful downward correction.
Nasdaq 100 Faces Resistance
The Nasdaq 100 index gained 0.90% on Friday but remains below its November 11 record high of 21,182.03. It is expected to open 0.1% higher today, with important resistance at 21,000, a level marked by the recent local high.
VIX Continued Declines
The VIX index, a measure of market volatility, reached a new local low of 13.49 on Friday - the lowest level since late July, prior to the August stock market correction. This could signal an impending downward reversal and a potential correction in stock prices.
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.
FANG Stocks in Sideways Trend
The NYSE FANG+ (NYFANG) index, which includes 10 highly-traded tech mega-cap stocks like Apple, Microsoft, Amazon, Alphabet, Nvidia, and Tesla, remains in a sideways trend after hitting a record high on November 13. This appears to be a flat correction within the long-term uptrend.
S&P 500 Futures Near Record Levels
The S&P 500 futures contract hit a new record high on Friday, reaching 6,060. Resistance remains at 6,050–6,060, with support at 5,980–6,000. This morning, the market is slightly below Friday's peak. While no negative signals are evident, a potential correction cannot be ruled out.
Conclusion
The S&P 500 index is likely to open flat this morning, with potential attempts at new record highs. However, short-term overbought conditions could lead to a downward correction at some point. Investors are closely watching today’s ISM Manufacturing PMI release at 10:00 a.m.
Summing up the Stock Price Forecast for December 2024, the stock market experienced a strong rally in November, driven by the presidential election outcome. While December is historically a bullish month, increased volatility and a short-term correction remain likely. The technology sector continues to underperform relative to the broader market.
Last month, I wrote “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.”
As it turned out, the late October retreat was indeed a downward correction, with the presidential election contributing to increased volatility - albeit to the bullish side.
For now, my short-term outlook is neutral.
Here’s the breakdown:
- The S&P 500 reached a new all-time high on Friday.
- The market is seeing increased volatility following the post-election rally.
- In my opinion, the short-term outlook is neutral.
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Thank you.
Paul Rejczak,
Stock Trading Strategist