Will stocks continue their record-breaking rally despite showing some short-term overbought signals?
The stock market rallied following the presidential election results yesterday. The S&P 500 index reached a new record high of 5,936.14 and closed 2.53% higher. It opened with a significant daily gap up, retracing the recent declines. This morning, futures contracts indicate a 0.4% higher opening for the index. The market is awaiting the important FOMC Rate Decision release at 2:00 p.m.
The investor sentiment improved once again, as shown in yesterday’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 broke above its mid-October consolidation yesterday, as we can see on the daily chart.
Nasdaq 100 Breaks to New Record High
The Nasdaq 100 rallied by 2.74%, reaching a new record high of 20,807.04. The support level is now at 20,600, marked by the recent resistance. Today, the Nasdaq 100 is likely to open 0.5% higher, further extending its record-breaking advance.
VIX: Sharply Lower
The VIX index, a measure of market volatility, declined by over 20% yesterday, moving back below the 20 level and nearing the 15 level. This confirmed risk-on sentiment and a lack of 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.
Futures Contract Continues Its Rally Ahead of the Fed
The S&P 500 futures contract is reaching new records this morning, approaching the 6,000 level. The support is now at 5,900-5,920, marked by the recent highs. The market is getting overbought in the short-term; however, no confirmed negative signals are evident.
Conclusion
On Wednesday, stocks entered a high-volatility period, as expected. This morning, the S&P 500 is expected to open slightly higher, further extending the record-breaking rally. Investors are eagerly awaiting the FOMC Rate Decision later today. There may be a pullback due to short-term overbought conditions; however, no negative signals are evident.
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 keeps reaching new record highs following Tuesday’s elections.
- The market’s focus is shifting to the Fed rate decision today.
- In my opinion, the short-term outlook is neutral.
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Thank you.
Paul Rejczak,
Stock Trading Strategist