Stocks are likely to retrace more of their recent declines – is this the beginning of a new uptrend?
Stocks extended their consolidation on Friday, with the S&P 500 closing 0.8% higher after rebounding from the 5,600 level. This morning, the S&P 500 is expected to open 0.8% higher, likely breaking above recent highs.
Investor sentiment remains bearish, as shown in last Wednesday’s AAII Investor Sentiment Survey, which reported that 21.6% of individual investors are bullish, while 58.1% of them are bearish.
The S&P 500 is likely to break above its downward trend line, as we can see on the daily chart.
S&P 500: Sideways Last Week
The S&P 500 gained 0.51% last week, fluctuating after its declines.
Last week, I wrote “The market may have found a temporary bottom, confirming the importance of the 5,500 support level. On the other hand, resistance is now at 5,800.” This proved to be correct.
Nasdaq 100: Attempting to Break 20,000
The Nasdaq 100 closed 0.39% higher on Friday, extending its short-term consolidation. This morning, the market is expected to open 1.5% higher, breaking above recent highs and the 20,000 level. However, it still appears to be a correction within the downtrend.
VIX: Pulling Back
The VIX index, a measure of market volatility, continued to decline last week, reaching a low of 19.15 on Friday. This signals reduced 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 Reaches a New Local High
This morning, the S&P 500 futures contract is approaching the 5,800 level after breaking above recent highs and the 5,750 resistance. It still appears to be a correction within the downtrend. Potential resistance is around 5,900–5,920.
Conclusion
Stocks are expected to open higher on Monday, with S&P 500 index braking above the 5,700 level - the highest since early March.
The key question remains: Is this the start of a new uptrend, or just a correction within the broader downtrend? Currently, it appears to be a correction, though the market may extend its short-term gains.
For now, my short-term outlook is neutral.
Here’s the breakdown:
- The S&P 500 is likely to retrace more of its recent declines.
- The market still appears to be in a correction rather than a new uptrend.
- In my opinion, the short-term outlook is neutral.
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Thank you.
Paul Rejczak,
Stock Trading Strategist