Will stocks continue their record-breaking advance, or are they forming a peak?
Stock prices hit new records yesterday as investor sentiment improved ahead of today's consumer inflation data. The S&P 500 index reached a new record high of 5,796.80, closing 0.71% higher. However, it is likely to open 0.4% lower today following the Consumer Price Index (CPI) announcement, with the data slightly higher than expected at +0.2% month-over-month.
Investor sentiment improved, as shown by yesterday’s AAII Investor Sentiment Survey, which reported that 49.0% of individual investors are bullish, while only 20.6% of them are bearish, down from 27.3% last week.
The S&P 500 reached a new record high, nearing the 5,800 level, as we can see on the daily chart.
Nasdaq 100 Also Higher
The Nasdaq 100 gained 0.80% on Wednesday, extending Tuesday’s 1.6% advance and reaching a new local high of 20,284.42. The market is approaching its July 10 all-time high of 20,690.97. This morning, it is expected to open 0.7% lower following the CPI data.
VIX: Lower but Still Above 20
On September 6, the VIX index, a measure of market fear, reached a local high of 23.76. On the previous Thursday, it fell to 14.90 as stock prices were advancing toward new record highs. However, on Tuesday the VIX hit a local high of 23.14 before pulling back. Yesterday, it was as low as 20.71.
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 Broke Above 5,800
Let’s take a look at the hourly chart of the S&P 500 futures contract. It broke above the recent trading range and the 5,800 resistance level yesterday, reaching a new record high around 5,847. Support is now in the 5,800-5,820 range. After a quick run-up due to the CPI data, the market pulled back, indicating further uncertainty ahead.
Conclusion
The release of the consumer inflation data is likely to lead to a lower opening for the S&P 500 today. The market could fluctuate following yesterday’s record-breaking advance as investors await the upcoming quarterly earnings season.
I opened a speculative short position in the S&P 500 futures contract on September 16.
In my Stock Price Forecast for October 2024, I wrote “the market extended its uptrend in September after rebounding from the early August low. No clear negative signals have surfaced; however, a correction could still occur. Historically, October is a seasonally weak month, especially during its first weeks. Will the stock market sell off soon? Although monetary policy easing supports the bulls, uncertainty surrounding geopolitical risks and the upcoming presidential election may still weaken sentiment.”
For now, my short-term outlook remains bearish.
Here’s the breakdown:
- The S&P 500 is likely to fluctuate following the CPI data and recent record-breaking advance.
- The market may still be forming a topping pattern before a downward correction.
- In my opinion, the short-term outlook is bearish.
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Thank you.
Paul Rejczak,
Stock Trading Strategist