Is the S&P 500 likely to reach new record highs, or is a correction imminent?
Friday's trading session saw the S&P 500 close 0.25% higher, extending a week of gains. However, uncertainty looms ahead of Wednesday's Consumer Price Index report, which could provide key signals for the Federal Reserve's future actions.
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. This morning, the S&P 500 is expected to open virtually flat, with the potential for continued short-term consolidation near record highs.
Investor sentiment has improved significantly. as shown in last Wednesday’s AAII Investor Sentiment Survey, which reported that 48.3% of individual investors are bullish, while 30.7% of them are bearish - a decrease from 38.6% the previous week.
The S&P 500 remains close to its all-time highs, as we can see on the daily chart.
S&P 500: 1% Weekly Gain
The S&P 500 gained 0.96% last week, following a 1.1% advance in the previous week. While no negative signals are evident, the market may face a correction in the near future.
The key medium-term support level remains around 5,700, marked by previous lows.
Nasdaq 100 Rallied Beyond 21,500
On Friday, the Nasdaq 100 extended its rally, reaching a new record high of 21,626.31 and closing 0.92% higher after breaking the 21,500 level. This morning, it is likely to open 0.1% lower. Similar to the broader market, there are no immediate negative signals, but short-term overbought conditions could lead to a correction.
VIX Continues to Fall
The VIX index, a measure of market volatility, dropped to a new local low of 12.70 on Friday, its lowest since early July. This indicates 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.
S&P 500 Futures Trading Sideways
The S&P 500 futures contract continues to consolidate around the 6,100 level. Overnight, it reached a new record high but has since pulled back slightly. Close support is at 6,080, marked by recent fluctuations. On the other hand, resistance remains at around 6,100-6,110.
Conclusion
Monday’s trading session is set to open flat following Friday's record highs. Will the stock market extend its gains again? For now, consolidation near current levels seems likely as investors await the important CPI release on Wednesday.
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 reached new record highs last week but may be nearing a correction.
- 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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Thank you.
Paul Rejczak,
Stock Trading Strategist