Stocks have reached record highs, but will they continue the uptrend?
Stock prices continued their uptrend yesterday, with the S&P 500 index reaching a new record high of 6,129.63, breaching its January 24 high. Today, the index is set to open virtually flat, with the market likely to move sideways around its high.
Will the uptrend continue? It’s hard to say, as investors await further economic data. A profit-taking could happen at some point.
Investor sentiment worsened again, as shown by the last Wednesday’s AAII Investor Sentiment Survey, which reported that 28.4% of individual investors are bullish, while 47.3% of them are bearish.
The S&P 500 index reached a new record high yesterday, as we can see on the daily chart.
Nasdaq 100 Also Higher
The Nasdaq 100 gained 0.23% on Tuesday, hitting a new record high of 22,191.37. However, today it is expected to open 0.1% lower. Support is at 22,000. No negative signals are evident, however, tech stocks may experience profit-taking at some point.
VIX Remains Near 15
The VIX index, a measure of market volatility, closed below the 15 level on Friday, indicating a lack of fear in the market. Yesterday, it rebounded slightly but remained in a consolidation.
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 Contract Trading Sideways
This morning, the S&P 500 futures contract is hovering along the 6,150 level, extending its short-term consolidation. Support is at 6,100–6,120, marked by previous resistance levels. For now, it appears to be a flat correction of the uptrend.
Conclusion
Stocks are expected to open virtually flat on Wednesday, likely extending their consolidation at record highs.
Last week’s rally was fueled by hopes for a resolution to the Russia-Ukraine conflict, but in the near term, the market may consolidate or face profit-taking, with investors reacting to geopolitical developments and upcoming economic data.
In my Stock Price Forecast for January 2025, I noted “...recent rallies have provided selling opportunities. What will February bring? The earnings season is in full swing, likely adding to volatility. Political developments are increasing uncertainty. The market's ongoing consolidation since November may be forming a medium-term topping pattern ahead of some more meaningful downward correction. However, no confirmed bearish signals have appeared yet.”
For now, my short-term outlook is neutral.
Here’s the breakdown:
- The S&P 500 hit a new record high, extending its bull market.
- 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