Will stocks resume their uptrend, or are they forming a top?
Stock prices extended their short-term consolidation on Monday, with the S&P 500 index closing 0.38% higher. The market continues to move sideways ahead of tomorrow’s FOMC rate decision. This morning, the S&P 500 is expected to open 0.3% lower after the release of Retail Sales data, which came in slightly higher than expected at +0.7% month-over-month.
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 last week. as shown by 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 in consolidation, as we can see on the daily chart.
Nasdaq 100 Accelerates Uptrend
The Nasdaq 100 index closed 1.45% higher, driven by gains in major stocks, including record highs in AAPL, AMZN, AVGO, TSLA, among others. Today, it is expected to open 0.2% lower.
There are no immediate negative signals, but short-term overbought conditions could lead to a correction.
VIX Moves Higher
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. However, it rebounded yesterday, climbing closer to the 15 level. It shows increasing market fear as sector rotation intensifies, with the technology sector rallying while other segments lag.
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: New Series Trading Above 6,100
This morning, the S&P 500 March futures contract is trading above the 6,100 level. The market continues to trade within its recent range, with support for the March series around 6,100 and resistance near 6,150.
Conclusion
The S&P 500 index is expected to open 0.3% lower today following a mixed session yesterday. A rotation within stocks continues, with some reaching record highs while recent leaders are lagging. Investors will be waiting for the important FOMC release tomorrow.
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 awaits tomorrow’s Fed decision.
- 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