Expectations ahead of today’s opening are positive, but will the S&P 500 resume its uptrend?
Stock prices retreated on Thursday, with the S&P 500 index closing 0.54% lower, extending its short-term consolidation above the 6,000 level. This morning, the S&P 500 is expected to open 0.3% higher as sentiment improves following Broadcom’s (AVGO) strong quarterly earnings release yesterday.
On 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 keeps fluctuating; it appears to be undergoing a relatively flat correction within the uptrend.
Investor sentiment has worsened slightly. as shown in the 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 is still trading along the upward trend line, as we can see on the daily chart.
Nasdaq 100: Positive Expectations
The Nasdaq 100 index fell 0.68% on Thursday, but futures contracts point to a 0.8% higher opening this morning. Optimism is caused by a pre-market rally in AVGO stock, which is up over 17%.
There are no immediate negative signals, but short-term overbought conditions could lead to a correction.
VIX Remaining Below 14
The VIX index, a measure of market volatility, dropped to a new local low of 12.70 last Friday, its lowest since early July. This 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: More Sideways Trading
The S&P 500 futures contract is rebounding this morning, moving closer to the 6,100 level. Resistance remains in the 6,100–6,110 range, with support at 6,050, the previous high. For now, the market appears to be consolidating.
Conclusion
Stocks are poised to open higher today, driven by optimism surrounding Broadcom’s quarterly earnings. A rotation within stocks continues, with some reaching record highs while recent leaders are lagging.
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 is likely to further extend its short-term consolidation.
- 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