Stock prices extended their gains, but will they keep rising?
The sentiment improved again, with the S&P 500 nearing the 5,600 level and closing 0.75% higher yesterday. The market is approaching its July 16 record high of 5,669.67, but will it continue upward? This morning, the index is likely to open 0.2% higher as markets await the FOMC rate decision next week.
Uncertainty remains regarding the Yen carry trade, the upcoming FOMC Rate Decision, and the Bank of Japan’s (BOJ) announcement next week.
Investor sentiment worsened, as shown by AAII Investor Sentiment Survey on Wednesday, which reported that 39.8% of individual investors are bullish, while 31.0% of them are bearish, up from 24.9% last week.
The S&P 500 index has retraced most of its recent declines, as we can see on the daily chart.
Nasdaq 100 Extends Short-Term Advances
The technology-focused Nasdaq 100 gained 0.97% yesterday, extending Wednesday’s advance of 2.2%. It is quickly recovering from recent declines. A potential resistance level remains at 20,000. This morning, the Nasdaq 100 is likely to open 0.1% higher.
VIX Continues Lower
Last Friday, the VIX index, a measure of market fear, reached a local high of 23.76. It was indicating elevated fear among investors. On Wednesday, the rebound in stocks pushed the VIX lower, and yesterday it closed near 17.
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.
Futures Contract Trading Above 5,600
Let’s take a look at the hourly chart of the S&P 500 futures contract. It is trading above the 5,600 level this morning, following yesterday’s index advance. The next resistance level is at 5,630-5,650, marked by the previous consolidation.
Conclusion
The S&P 500 has retraced most of its recent declines after rebounding from an intraday low on Wednesday. Is this the beginning of a new uptrend leading to a record high? For now, it looks like a medium-term consolidation. The markets are awaiting the Fed's monetary policy update next week, and bullish sentiment has taken over, lifting stock prices.
I closed my profitable short position on Monday, at 5,462. This position, opened on August 20 at 5,626, generated a 164-point gain.
Last Wednesday, in my Stock Price Forecast for September 2024, I noted that, “the market experienced significant volatility in August, with a roller-coaster ride that included a sell-off to the August 5 local low and a subsequent advance, leading to a consolidation near the record high. (…) sharp reversal suggests more volatility in September. Last month, I wrote that ‘August is beginning on a very bearish note, but the market may find a local bottom at some point.’ The same could be said today, and September will likely not be entirely bearish for stocks.”
For now, my short-term outlook remains neutral.
Here’s the breakdown:
- The S&P 500 index neared the 5,600 level, showing short-term bullishness, though uncertainty remains.
- Investors are awaiting the FOMC Rate Decision next week.
- In my opinion, the short-term outlook is neutral.
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Thank you.
Paul Rejczak,
Stock Trading Strategist