Stocks hover near record highs. Is this a topping pattern?
Monday’s trading session brought more uncertainty for the stock market. Despite some volatility, the S&P 500 index basically moved sideways and closed 0.18% lower. Investors are anticipating more quarterly earnings reports, with the TSLA release in focus tomorrow. Today, the S&P 500 index is likely to open 0.3% lower, extending a short-term consolidation.
Despite more advances of the stock market, investor sentiment slightly worsened last week, as shown by last Wednesday’s AAII Investor Sentiment Survey, which reported that 45.5% of individual investors are bullish, while 25.4% of them are bearish, up from 20.6% last week.
The S&P 500 extends its short-term fluctuations, as we can see on the daily chart.
Nasdaq 100 Remains Above 20,000
The Nasdaq 100 gained 0.18% yesterday, extending its consolidation above the 20,000 level. However, it continues to trade well below the record high of 20,690.97 from July 10.
Last Tuesday, I wrote that “tech stocks may experience a period of uncertainty as investors await quarterly earnings and future outlooks.” That still holds true.
VIX: Below 20
On September 6, the VIX index, a measure of market fear, reached a local high of 23.76. On September 26, it fell to 14.90 as stock prices were advancing toward new record highs. Recently, the VIX has been fluctuating around the 20 level, and on Friday, it moved towards 18, signalling 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: More Fluctuations
Yesterday, the S&P 500 futures contract retraced some of its advances, however, remaining within a short-term consolidation range. The support level is at 5,850, marked by short-term lows. On the other hand, the resistance level is now at 5,900-5,925.
Conclusion
Today’s trading session is likely to begin on a slightly negative tone. The S&P 500 may further extend its short-term consolidation. The question remains: is this a topping pattern or just a consolidation before another leg up? For now, it looks like a consolidation and a flat correction of the record-breaking rally.
For now, my short-term outlook is neutral.
Here’s the breakdown:
- The S&P 500 is poised to extend short-term fluctuations as investors await earnings releases.
- Stock prices may be forming a local high, however, no negative signals are evident.
- In my opinion, the short-term outlook is neutral.
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Thank you.
Paul Rejczak,
Stock Trading Strategist