Will stock prices rebound after their recent sell-off?
Stocks continued to sell off on Thursday, with the S&P 500 closing 1.59% lower, breaking below the 5,900 level. The decline was led by NVDA, which dropped 8.5% following its earnings report on Wednesday.
Today, the S&P 500 is set to open 0.3% higher, likely moving sideways after the recent drop.
Was this recent decline just a downward correction or the start of a new downtrend? It’s still unclear. It still appears to be an extension of the consolidation that began after the November rally.
Investor sentiment has worsened considerably, as shown by the Wednesday’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 accelerated its short-term downtrend yesterday, as we can see on the daily chart.
Nasdaq 100: Nearly 3% Lower
The Nasdaq 100 closed 2.75% lower on Thursday, extending its sell-off following NVDA’s earnings report. Today, the technology index is expected to open 0.2% higher. A rebound is possible, but there are no clear positive signals yet.
VIX Spiked Above 20
The VIX index, a measure of market volatility, has been recently moving along the 15 level. However, the stock market’s decline pushed the VIX back above 20, confirming increased fear among investors.
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 Dipped Below 5,900
This morning, the S&P 500 futures contract is rebounding slightly, though it remains below the 5,900 level. The market may be approaching a short-term low, but no clear positive signals have emerged. Resistance is now at 5,920-5,940, marked by the recent support.
Conclusion
Stock prices are expected to open slightly higher today but could remain volatile following the recent sell-off. A market rebound is likely at some point, potentially leading to a consolidation.
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 broke below 5,900 on Thursday, extending its pullback.
- 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