Will stocks return to their recent highs?
Stocks ended lower on Friday, with the S&P 500 declining 0.95%, retracing some of last week’s rebound from Monday’s low. The market reacted to UoM Inflation Expectations data and tariff news. Today, the S&P 500 is expected to open 0.5% higher after an overnight advance.
Investor sentiment has recently worsened, as shown by the last Wednesday’s AAII Investor Sentiment Survey, which reported that 33.3% of individual investors are bullish, while 42.9% of them are bearish.
The S&P 500 index pulled back from the 6,100 level, as we can see on the daily chart.
S&P 500 – Little Changed Last Week
The S&P 500 declined 0.24% last week. Despite reaching a new record high on January 24, the market remains in a consolidation phase.
Key medium-term support level is around 5,800, marked by recent lows, while resistance remains around 6,100.
Nasdaq 100 Remains Below 22,000
The Nasdaq 100 closed 1.30% lower on Friday, pulling back from resistance near 21,800-22,000. Support is at 21,000–21,200, marked by recent lows.
Today, the Nasdaq 100 is expected to open 0.7% higher, retracing some of Friday’s pullback. Further consolidation seems likely.
VIX Rebounded from 15
The VIX index, a measure of market volatility, rebounded from 15 on Friday, reaching 16.66. It continues to fluctuate with local highs above 20 on January 27 and February 3, still indicating 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 Contract Retracing Friday’s Decline
This morning, the S&P 500 futures contract is trading higher after an overnight advance. Sentiment is improving as investors await Fed Chair Powell Testimony tomorrow, and the CPI data on Wednesday, among other factors. Resistance is now around 6,100-6,120, while support is near 6,050.
Conclusion
Today, the S&P 500 is set to open higher, retracing some of Friday’s decline. The market may continue consolidating. No confirmed negative signals have emerged, but stocks continue to fluctuate following post-election rally.
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 likely to remain in a consolidation.
- 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