Will stocks extend their record-breaking rally following the release of PPI data?
Thursday’s trading session didn’t change much for the stock market, despite the important release of the Consumer Price Index. The S&P 500 fluctuated within Wednesday’s price range, ultimately closing 0.21% lower. On Wednesday, the index reached a new record high of 5,796.80 in anticipation of the inflation data release. This morning, the market is likely to open 0.1% higher following a slightly lower-than-expected Producer Price Index announcement and earnings releases from major banks.
Investor sentiment improved, as shown by the Wednesday’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 remains near the 5,800 level, as we can see on the daily chart.
Nasdaq 100: Struggling at Previous High
The Nasdaq 100 lost 0.13% yesterday, following Wednesday’s 0.8% advance. The technology index remains weaker than the broader market due to weakness in FANG stocks (including AAPL, MSFT, NVDA). This morning, the Nasdaq 100 is likely to open 0.1% lower.
VIX: Still Elevated
On September 6, the VIX index, a measure of market fear, reached a local high of 23.76. On September 26, it fell to 14.90 as stock prices were advancing toward new record highs. However, it has been trading above 20 again, signaling some 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 Broke Above 5,800
Let’s take a look at the hourly chart of the S&P 500 futures contract. This morning, it is still trading within a consolidation phase following Wednesday’s breakout higher. Support lies in the 5,800-5,820 range. The PPI data release didn’t change much.
Conclusion
The S&P 500 index is set to open 0.1% higher, staying close to its record high reached on Wednesday. The market may attempt to reach new highs as sentiment remains bullish. Today, we received quarterly earnings reports from some large banks, which were mixed. Investors await more earnings in the coming weeks.
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 open near its record high, with investor sentiment remaining elevated.
- 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