Will the S&P 500 resume its uptrend despite signs of a topping price action?
Stocks extended their Friday’s rebound yesterday, with the S&P 500 index closing 0.55% higher. However, the market retraced a large part of its intraday gains, falling back below the 6,000 level. Today, the S&P 500 is expected to open 0.3% higher, likely continuing its fluctuations. Investors will be closely watching economic data scheduled for 10:00 a.m., including the ISM Services PMI and JOLTS Job Openings
On December 9, I noted that “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.” The sharp decline following the Fed’s release confirmed that the market was forming a topping pattern, as fluctuations led to a break lower.
Investor sentiment has worsened, as shown by last Wednesday’s AAII Investor Sentiment Survey, which reported that 35.4% of individual investors are bullish, while 34.2% of them are bearish.
The S&P 500 index remains within its consolidation, as we can see on the daily chart.
Nasdaq 100: Relatively Stronger
The Nasdaq 100 index gained 1.09% yesterday, extending its 1.7% advance from Friday. The move has been fueled by advances in META and NVDA stocks, among others. Last Thursday, the Nasdaq 100 hit its lowest level since late November before rebounding from 20,800. Yesterday, it traded as high as 21,703.49. This morning, the Nasdaq 100 is expected to open flat, even as NVDA stock continues to rally.
Further fluctuations are likely following November - December rally.
VIX: Volatility Declines
On December 18, the VIX index, a measure of market volatility, surged to 28.32, its highest level since early August. It confirmed heightened fear in the market as stocks sold off. Then, the VIX dropped below 15 in late December. Last week, it pulled back from 20, confirming an upward reversal in stock prices. Yesterday, it hit a daily low of 15.71.
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: Hovering Above 6,000
This morning, the S&P 500 futures contract is trading above the 6,000 level after pulling back from a local high of around 6,068 yesterday. Key support remains at 5,980-6,000, with resistance is at 6,050-6,100. The market seems poised for further consolidation.
Conclusion
Stock prices are expected to open slightly higher today, with the S&P 500 index returning near the 6,000 level. Investors are bracing for a series of economic data releases scheduled for this week, which could lead to further consolidation and volatility.
Yesterday, in my Stock Price Forecast for January 2025, I wrote that “the stock market is poised for continued fluctuations following the post-election rally in November. Although the S&P 500 dipped by 2.5% last month, this appears to be just a correction of November’s gains.
Will the market resume its uptrend and reach new record highs? This appears likely at some point, driven by growing optimism ahead of Trump’s upcoming inauguration on January 20. However, rallies may provide selling opportunities, leading to a medium-term consolidation phase.”
For now, my short-term outlook is neutral.
Here’s the breakdown:
- The S&P 500 is likely to continue its consolidation ahead of key economic data releases.
- 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