Are stock prices forming a short-term bottom, or is this just a pause before another leg lower?
The first trading day of the new year was mixed, as the S&P 500 index dipped to a new local low before closing just 0.22% lower, continuing its short-term fluctuations. Overall, the market outlook didn’t change significantly. This morning, the index is expected to open 0.2% higher, and it may see more uncertainty and sideways trading.
On December 9, 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 sharp decline following the Fed’s release confirmed that the market was forming a topping pattern, as fluctuations led to a break lower.
Investor sentiment has worsened, as shown by the Wednesday’s AAII Investor Sentiment Survey, which reported that 35.4% of individual investors are bullish, while 34.2% of them are bearish.
The S&P 500 index continues to trade near its mid-December low, as we can see on the daily chart.
Nasdaq 100 – Still Trading Near 21,000
The Nasdaq 100 index closed 0.17% lower yesterday after rebounding from a new local low of around 20,800, its lowest level since late November, driven by weakness in AAPL and TSLA stocks.
Today, the technology-heavy index is expected to open 0.3% higher. Further fluctuations are likely following November - December rally.
VIX Neared 20
On December 18, the VIX index, a measure of market volatility, surged to 28.32, its highest level since early August. It confirmed heightened fear in the market as stocks sold off. Then, the VIX dropped below 15 but rebounded last Friday. Yesterday, it extended its advance, nearing the 20 level.
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 Rebounding Again
This morning, the S&P 500 futures contract is rebounding, resembling yesterday’s pre-market action. The support remains around 5,900, with resistance at 5,980-6,000. The market may continue to trade sideways as investors take profits following the recent rally.
Conclusion
Friday’s trading session is set to open slightly higher for stocks. The market is likely to extend its consolidation following recent declines. This is a period of uncertainty, further intensified by today’s ISM Manufacturing PMI release, scheduled for 10:00 a.m.
Last Friday, I noted “The key question remains: Will the S&P 500 continue higher and reach new records, or is this rebound part of a broader consolidation? Uncertainty and some profit-taking may dominate the final trading days of the year.”
On Monday, I will add my Stock Price Forecast for January 2025.
For now, my short-term outlook is neutral.
Here’s the breakdown:
- The S&P 500 is likely to extend its consolidation.
- The stock market is still seeing increased volatility following the post-election rally.
- In my opinion, the short-term outlook is neutral.
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Thank you.
Paul Rejczak,
Stock Trading Strategist