Stocks are likely to open higher, but will they start a new uptrend?
Stock prices moved sideways yesterday, with the S&P 500 index closing 0.01% higher. It fluctuated after recent declines. Today, the market is set to open higher following Nvidia’s (NVDA) earnings release, with S&P 500 futures pointing to a 0.5% higher open.
Was this recent decline just a downward correction or the start of a new downtrend? It’s still unclear. So far, it appears to be an extension of the consolidation that began after the November rally.
Investor sentiment has worsened considerably, as shown by yesterday’s AAII Investor Sentiment Survey, which reported that only 19.4% of individual investors are bullish, while 60.6% of them are bearish.
The S&P 500 continued to fluctuate below the 6,000 level yesterday, as we can see on the daily chart.
Nasdaq 100: Also Moving Sideways
The Nasdaq 100 closed 0.22% higher on Wednesday, staying above the key 21,000 level. Today, the index is likely to open 0.7% higher after NVDA’s earnings release. The stock itself is trading 1.7% higher in the pre-market.
VIX Pulled Back
The VIX index, a measure of market volatility, has been recently moving along the 15 level. On Tuesday, it hit 21.48, signaling increased investor fear. However, as the market rebounded, the VIX pulled back below the key 20 level, trading as low as 17.83 yesterday.
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 Holding Near 6,000
This morning, the S&P 500 futures contract is trading near the 6,000 level continuing its short-term consolidation. It remains above the 5,920-5,940 support range.
Has the downtrend reversed? In the short term, it appears so, though this could be an upward correction within the downtrend. The key resistance is around 6,030, marked by previous lows.
Conclusion
The S&P 500 is likely to open higher this morning, reacting to NVDA’s earnings release.
In Friday’s analysis, I mentioned that “in the near term, the market may consolidate or face profit-taking, with investors reacting to geopolitical developments and upcoming economic data.”
This has proven accurate, and more uncertainty may be ahead.
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 continues to fluctuate after recent declines.
- 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