Will stock prices resume their record-breaking advance?
Stock prices continued their short-term uptrend on Friday, with the S&P 500 index reaching a local high of 5,972.90 and closing 0.35% higher. This advance retraced more of the recent pullback, bringing the index closer to the 6,000 level. Futures contracts that gained overnight suggest the S&P 500 is likely to open 0.5% higher this morning.
Investor sentiment has weakened recently, as shown in last Wednesday’s AAII Investor Sentiment Survey, which reported that 41.3% of individual investors are bullish, while 33.2% of them are bearish.
The S&P 500 is approaching the key 6,000 level again, as we can see on the daily chart.
S&P 500: Weekly Gain
The S&P 500 gained 1.68% last week, recovering from a 2.1% decline the previous week. The market continues to consolidate following its post-election rally, Currently, it looks like a relatively flat correction within a medium-term uptrend.
The key medium-term support level remains around 5,700, marked by previous lows.
Nasdaq 100: Showing Relative Weakness
The Nasdaq 100 index gained just 0.17% on Friday, staying below Thursday’s local high. It remains within the resistance marked by the November 15 gap down at around 20,685-20,864. Today, the tech-heavy index is expected to open 0.4% higher, potentially attempting to close this gap.
VIX Moved Lower
The VIX index, a measure of market volatility, reached 18.79 last Wednesday, approaching the psychologically significant 20 level, signaling rising investor caution. However, it retreated on Friday, closing near 15, indicating relatively low market anxiety.
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: Trading Above 6,000
The S&P 500 futures contract has retraced more of its recent pullback and is now trading above the 6,000 level. The next resistance is at 6,035-6,050, marked by record highs. On the other hand, the support is now at 5,980-6,000.
Conclusion
Stocks extended their short-term uptrend on Friday, with the S&P 500 edging closer to its November 11 record high. Futures indicate a positive open this morning, with sentiment elevated ahead of the Thanksgiving holiday and upcoming economic data releases, such as the CB Consumer Confidence report tomorrow. While the market keeps retracing its recent declines, profit-taking may emerge at some point.
On Friday, I noted “In summary, stocks show mild bullishness, and the market appears to be getting closer to record highs again. However, this could be part of a rebound following recent declines.” This remains valid today.
For now, my short-term outlook is neutral.
Here’s the breakdown:
- The S&P 500 is approaching the 6,000 level again.
- The market is 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