Will stock prices resume their upward trend, or will they continue to fluctuate?
Friday’s trading session didn’t change anything, with the S&P 500 index closing near Thursday’s closing price. Stock prices remained flat despite a significant rally in Broadcom (AVGO) following its strong quarterly earnings. This morning, the S&P 500 is expected to open 0.3% higher, as sentiment remains bullish with stocks trading near record levels.
Last Monday, I noted that “the S&P 500 index reached a new record high of 6,099.97 on Friday. The key question remains whether the uptrend will continue, despite signs of short-term overbought conditions.” The market continues to fluctuate; it appears to be undergoing a flat correction within the uptrend.
Investor sentiment has worsened slightly. as shown in last Wednesday’s AAII Investor Sentiment Survey, which reported that 43.3% of individual investors are bullish, while 31.7% of them are bearish - an increase from 30.7% last week.
The S&P 500 remains below its upward trend line, as we can see on the daily chart.
S&P 500 Pulled Back Last Week
The S&P 500 lost 0.64% last week, following 1% advance in the previous week. While no negative signals are evident, the market may face a correction at some point.
The key medium-term support level remains around 5,700, marked by previous lows.
Nasdaq 100 Reached a New Record
The Nasdaq 100 index gained 0.76% on Friday, driven by a 24% surge in Broadcom’s stock price. Excluding Broadcom’s rally, the index would have declined.
There are no immediate negative signals, but short-term overbought conditions could lead to a correction.
VIX: Below 14
The VIX index, a measure of market volatility, dropped to a new local low of 12.70 on the previous Friday, its lowest since early July. Last week, it has been fluctuating near the 14 level, signaling relatively low 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.
S&P 500 Futures: Sideways Trading Continues
The S&P 500 futures contract is rebounding this morning. On Friday, the market retested the 6,050 support level. Currently, it is trading within last week’s consolidation range. Resistance remains in the 6,100–6,110 range.
Conclusion
Stocks are expected to open higher this morning, following Friday’s consolidation. The market is likely to continue moving higher within its recent trading range, nearing the 6,100 level. A rotation within stocks continues, with some reaching record highs while recent leaders are lagging. Investors will be waiting for the important FOMC release on Wednesday.
Last Monday, in my Stock Price Forecast for December 2024, I wrote “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.”
For now, my short-term outlook is neutral.
Here’s the breakdown:
- The S&P 500 continues to consolidate within a narrow range.
- The 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