Stocks have continued their record-breaking rally, but how much upside remains?
Stock prices reached new record highs on Friday, as investor sentiment remained elevated following the release of the Producer Price Index. The S&P 500 index climbed as high as 5,822.13, while the Dow Jones Industrials also set a new record high. However, the Nasdaq 100 remained well below its July peak. This morning, S&P 500 futures indicate a 0.2% higher open. Investors are anticipating quarterly earnings releases this week, with key reports from BAC, GS, and UNH on Tuesday, ASML on Wednesday, and TSMC and NFLX on Thursday.
Investor sentiment improved last week, as shown by Wednesday’s AAII Investor Sentiment Survey, which reported that 49.0% of individual investors are bullish, while only 20.6% of them are bearish, down from 27.3% last week.
The S&P 500 broke above the 5,800 mark, as we can see on the daily chart.
S&P 500: Consistently Higher
Compared to the previous Friday's close, the S&P 500 gained 1.11%, following last week's advance of 0.2% and the previous week's gain of 0.6%. The key support level is now between 5,600-5,650, marked by previous local highs, while potential resistance is at 6,000.
Nasdaq 100: Still Struggling at Previous High
The Nasdaq 100 gained just 0.15% on Friday, reflecting the relative weakness in the technology sector, including the largest tech stocks. This morning, the Nasdaq 100 is expected to open 0.3% higher as it attempts to break above its September high.
VIX: Above 20 Despite Stock Prices Records
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. However, it has recently traded above 20 again, signaling some 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 Contract: Approaching 5,900
Let’s take a look at the hourly chart of the S&P 500 futures contract. This morning, it is reaching new record highs above the 5,870 level. The uptrend continues, although there are some short-term overbought conditions that could trigger a downward correction. The support level is now at 5,850, marked by recent fluctuations.
Conclusion
The broad stock market extended its multi-year bull market on Friday, with the S&P 500 and DJIA both reaching new record highs. Investor sentiment remains elevated, as reflected in last week's AAII survey, with only 20% of individual investors expressing bearish views. There are no clear negative signals at present, and the market may continue rising ahead of this week’s important earnings releases. This morning, the S&P 500 is likely to open 0.2% higher.
In my Stock Price Forecast for October 2024, I wrote “the market extended its uptrend in September after rebounding from the early August low. No clear negative signals have surfaced; however, a correction could still occur. Historically, October is a seasonally weak month, especially during its first weeks. Will the stock market sell off soon? Although monetary policy easing supports the bulls, uncertainty surrounding geopolitical risks and the upcoming presidential election may still weaken sentiment.”
For now, my short-term outlook is neutral.
Here’s the breakdown:
- The S&P 500 is likely to open slightly higher, reaching a new record high.
- Despite some clear technical overbought conditions, the market continues to rise.
- In my opinion, the short-term outlook is neutral.
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Thank you.
Paul Rejczak,
Stock Trading Strategist