Stocks have reached new record highs and are now pausing. Which direction will they take next?
Monday’s trading session saw further gains for the stock market, with the S&P 500 index hitting a new record high of 6,017.31 and closing 0.10% higher. Market sentiment remained bullish, though uncertainty increased after the recent record-breaking rally fueled by the presidential elections and the FOMC interest rate cut. This morning, the S&P 500 is expected to open nearly flat, potentially consolidating ahead of key consumer inflation data tomorrow.
Last week, the investor sentiment improved once again, as shown in the Wednesday’s AAII Investor Sentiment Survey, which reported that 41.5% of individual investors are bullish, while 27.6% of them are bearish.
The S&P 500 has continued its rally following last Tuesday’s election, as we can see on the daily chart.
Nasdaq 100 Remains Above the 21,000 Level
The Nasdaq 100 lost 0.05% yesterday, following a 0.1% gain on Friday, indicating a pause after last week’s rally in the tech sector. The index is expected to open virtually flat today.
It appears technically overbought in the short term and may be due for a correction or consolidation. The support level is between 20,800 and 20,900, marked by last Thursday’s gap up.
VIX: Fluctuating Around 15
The VIX index, a measure of market volatility, declined by over 20% last Wednesday, moving back below the 20 level and nearing the 15 level. This confirmed risk-on sentiment and a lack of fear in the market. It has since moved sideways.
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.
Futures Contract: Consolidation Above 6,000
The S&P 500 futures contract pulled back from a new record high of around 6,053 yesterday, retracing part of its recent rally. Support is at around 5,980-6,000. Although the market appears overbought in the short term, no confirmed negative signals are evident.
Conclusion
The stock market is pausing after last week’s euphoria-driven rally, which was fueled by election results and the Fed’s interest rate cut on Thursday.
Yesterday, I noted that “this week could see a period of increased volatility or consolidation.” This proved correct. The S&P 500 is likely to open virtually flat today, continuing its consolidation, with investors awaiting key Consumer Price Index release tomorrow.
In my Stock Price Forecast for November 2024, I wrote “The key question is: Will this sell-off mark the start of a medium-term downtrend, or is it merely a downward correction within an uptrend? For now, it appears to be a correction, but next week’s presidential elections could add to volatility.”
For now, my short-term outlook is neutral.
Here’s the breakdown:
- The S&P 500 rallied last week but is now pausing.
- The market is awaiting tomorrow’s inflation data.
- In my opinion, the short-term outlook is neutral.
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Thank you.
Paul Rejczak,
Stock Trading Strategist