Are stocks reversing their downtrend? NVDA's release is likely to set the tone.
Tuesday’s trading session brought further declines in stocks, but the market rebounded from intraday lows, with the S&P 500 closing just 0.47% lower. At its lowest point, the index hit its lowest level since mid-January.
Was this recent decline just a downward correction or the start of a new downtrend? It’s still unclear. So far, it appears to be an extension of the consolidation that began after the November rally.
Today, the S&P 500 is set to open 0.4% higher, though the main focus will be on NVDA’s quarterly earnings, scheduled for release after the close of today’s trading session.
Investor sentiment remained relatively weak, as shown by the last Wednesday’s AAII Investor Sentiment Survey, which reported that 29.2% of individual investors are bullish, while 40.5% of them are bearish.
The S&P 500 remained below the 6,000 level yesterday, as we can see on the daily chart.
Nasdaq 100 Remained Relatively Weak
The Nasdaq 100 fell 1.24% on Tuesday, extending Monday’s 1.2% loss, which followed an over 2% sell-off on Friday. The index has now retraced all of its gains from mid-January’s local lows. However, it managed to close above the 21,000 level.
Today, Nasdaq 100 futures indicate a 0.8% higher open as sentiment improves ahead of NVDA’s key earnings release.
VIX Closed Below 20
The VIX index, a measure of market volatility, has been recently moving along the 15 level. On Friday, it surged toward 20, and yesterday, it hit 21.48, signaling increased investor fear. However, the market’s rebound led to a pullback below the key 20 level.
Historically, a dropping VIX indicates less fear in the market, and a 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 Rebounds to 6,000
This morning, the S&P 500 futures contract is trading near 6,000, following a rebound from yesterday’s local low of 5,924.
Has the downtrend reversed? In the short term, it appears so, though this could be an upward correction within the downtrend. The key resistance is around 6,030, marked by previous lows.
Conclusion
Stocks are set to open higher today, following Tuesday’s intraday rebound. However, all eyes are on NVDA’s quarterly earnings, scheduled for release after the market close.
Overall, the market continues its weeks-long consolidation.
In Friday’s analysis, I mentioned that “in the near term, the market may consolidate or face profit-taking, with investors reacting to geopolitical developments and upcoming economic data.”
This has proven accurate, and more uncertainty may be ahead.
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 is expected to retrace some of its recent declines this morning, with NVDA earnings in focus.
- 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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Paul Rejczak,
Stock Trading Strategist