Stocks continued their rebound but may face further uncertainty following earnings releases and data.
Stocks continued Monday’s rebound yesterday, with the S&P 500 index closing 0.72% higher. The market was awaiting earnings releases from major tech companies, which added to optimism following Monday’s tariff sell-off. Today, the S&P 500 is expected to open 0.5% lower, likely extending its consolidation.
Investor sentiment declined last week, as shown by Wednesday’s AAII Investor Sentiment Survey, which reported that 41.0% of individual investors are bullish, while 34.0% of them are bearish.
The S&P 500 index continues to move sideways, as we can see on the daily chart.
Nasdaq 100 Continued Its Rebound
The Nasdaq 100 gained 1.26% yesterday, breaking above the 21,500 level and extending its consolidation. Today, we will receive the earnings release from QCOM, and tomorrow, AMZN will report its quarterly results. Resistance remains around 21,800, marked by the previous trading range, while support is at 21,000-21,200, marked by recent lows.
VIX Pulled Back from 20
The VIX index, a measure of market volatility, advanced to the daily high of 22.51 last Monday, the highest level since December 20. However, it later retraced most of that move, falling to 14.90 on Friday. On Monday, it briefly reached 20.42 before pulling back, and yesterday it dipped below 17.
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 Moving Sideways
This morning, the S&P 500 futures contract is trading above 6,000 extending the consolidation that began after Monday’s rebound. Support is at around 5,900-5,950, while resistance is still at 6,050.
Conclusion
Wednesday’s trading session is set to open lower for the main indices. Nonetheless, yesterday’s rebound has fueled hopes of a recovery and a return to previous highs for bulls. Investors are closely watching earnings reports and key economic data this week, and further consolidation appears likely.
On Monday, 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 is expected to continue trading sideways.
- 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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Paul Rejczak,
Stock Trading Strategist