Will stocks reverse their downtrend, or was Friday’s rebound just a temporary correction?
Stocks rebounded on Friday, with the S&P 500 gaining 1.59% as sentiment improved in the last hour of trading. The market retraced most of Thursday’s decline, and this morning, it is poised to open 0.4% higher, extending the rebound.
On Friday, I noted “Was this recent decline just a downward correction or the start of a new downtrend? It’s still unclear. It still appears to be an extension of the consolidation that began after the November rally.” This proved correct, as the rebound may be part of the stock market’s multi-month consolidation.
Investor sentiment worsened considerably last week, as shown by Wednesday’s AAII Investor Sentiment Survey, which reported that only 19.4% of individual investors are bullish, while 60.6% of them are bearish.
The S&P 500 rebounded from the $2,850 level, as we can see on the daily chart.
S&P 500 Lost 1% Last Week
The S&P 500 closed 0.98% lower last week, extending the prior week’s 1.7% decline. Overall, it continues to consolidate after the post-presidential election rally. Key support remains around 5,800, while resistance is at 6,000-6,100.
S&P 500: February Was Inconclusive
In February, the S&P 500 lost 1.42% after gaining 2.7% in January. The market remained in consolidation. No confirmed negative signals have appeared. Overall, this consolidation seems to be a flat correction within the broader uptrend.
Nasdaq 100 Rebounded from a New Local Low
The Nasdaq 100 gained 1.62% on Friday, retracing some of Thursday’s 2.8% sell-off. Today, it is expected to open 0.6% higher, likely moving near the 21,000 level. Key support remains around 20,500, marked by previous lows.
VIX Pulled Back Below 20
The VIX index, a measure of market volatility, pulled back from a local high of 22.40 on Friday, indicating reduced fear in the market as stocks rebounded in the last hour of trading. However, the VIX remains elevated.
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 Broke Their Trend Line
The NYSE FANG+ (NYFANG) index, which includes 10 highly-traded tech mega-cap stocks like Apple, Microsoft, Amazon, Alphabet, Nvidia, and Tesla, broke below its upward trend line last Monday. For now, it remains in a three-month consolidation.
On February 19, the index reached a record high of 14,053.74 but has since lost over 11%.
Last month, I wrote “The index continues its long-term uptrend but may be forming a medium-term topping pattern.” Indeed, it appeared to be forming a topping pattern before reversing downward.
S&P 500 Futures Contract Is Back Near 6,000
This morning, the S&P 500 futures contract is trading near the 6,000 level following Friday’s rebound from a local low of around 5,850. Support is now at 5,950, while resistance is at 6,000-6,020.
Conclusion
Monday’s trading session is set to start on a positive note, with the S&P 500 expected to open 0.3% higher, extending Friday’s rebound.
On Friday, I noted “A market rebound is likely at some point, potentially leading to a consolidation.” This scenario is playing out, and the market appears likely to continue fluctuating.
Summing up the Stock Price Forecast for March 2025, the stock market is poised for a positive start to the month, though this may simply be another part of its medium-term consolidation. The S&P 500 keeps fluctuating following its post-election rally.
Quoting my Stock Price Forecast for February “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 rebounded from a new local low on Friday and is expected to extend that rebound today.
- The stock market is still seeing increased volatility following the post-election rally.
- In my opinion, the short-term outlook is neutral.
The full version of today’s analysis - today’s Stock Trading Alert - is bigger than what you read above, and it includes the additional analysis of the Apple (AAPL) stock and the current S&P 500 futures contract position. I encourage you to subscribe and read the details today (with a single-time 16-day free trial). Stocks Trading Alerts are also a part of our Diamond Package that includes Gold Trading Alerts and Oil Trading Alerts.
And if you’re not yet on our free mailing list, I strongly encourage you to join it - you’ll stay up-to-date with our free analyses that will still put you ahead of 99% of investors that don’t have access to this information. Join our free stock newsletter today.
Thank you.
Paul Rejczak,
Stock Trading Strategist