The CPI report didn't trigger any significant movements. Are stocks approaching local highs?
Stock prices resumed their uptrend on Tuesday, fueled by the Producer Price Index (PPI). The S&P 500 index gained 1.58%, closing above the 5,400 level. Today, it is likely to open 0.1% higher after the Consumer Price Index (CPI) announcement, which came in at +0.2% versus the expected +0.2% month over month. As a result, the market may move sideways this morning. For now, it appears to be consolidating within the uptrend.
The investor sentiment worsened recently, as indicated by the last Wednesday's AAII Investor Sentiment Survey, which showed that 40.5% of individual investors are bullish, while 37.5% of them are bearish – up from 25.2% last week.
The S&P 500 index retraced more of its declines yesterday, as we can see on the daily chart.
Nasdaq 100 at 19,000
The technology-focused Nasdaq 100 accelerated its short-term uptrend yesterday, gaining 2.50% on significant advances in big-tech stocks, including a 6.5% gain by NVDA. The Nasdaq 100 reached a month-long downward trend line, and this morning, it is likely to open virtually flat, remaining close to that line and the 19,000 level.
VIX Coming Back Below 20
Last Monday, the VIX index, a measure of market fear, reached a new long-term high of 65.73 - the highest level since the 2008 financial crisis and the COVID sell-off in 2020. This reflected significant fear in the market. However, since then, it has been retracing, and yesterday, it dropped as low as 17.95, indicating much less fear.
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 Moving Sideways After the CPI
Let’s take a look at the hourly chart of the S&P 500 futures contract. Last Monday, it traded as low as 5,120, rebounded to around 5,360 on Wednesday, then pulled back below 5,200 before breaking back above 5,400. Yesterday, the market broke higher after a period of consolidation along the 5,400 level, reaching local highs of around 5,460. Today, the contract is fluctuating following the CPI report. The support level is now at 5,400.
Conclusion
In my Stock Price Forecast for August, I noted “a sharp reversal occurred, and by the end of the month, the S&P 500 experienced significant volatility following the sell-off. August is beginning on a very bearish note, but the market may find a local bottom at some point.”
Stock prices are about to open 0.1% higher on consumer inflation data. This may only be a flat correction of recent gains or the beginning of another consolidation phase. The rebound from last Monday’s low has been significant, and bulls have regained control of the market. Will this lead to new record highs? For now, it still seems like a correction within the downtrend. However, the market may see a consolidation following its late July–early August sell-off.
Last Friday, I wrote “(…) rebound brought some hope for bulls, but it seems they are not out of the woods yet. The recent sell-off was significant, and it will likely take more time to recover.
There is also a chance that the current advances are merely an upward correction, and the market could revisit its lows at some point.”
My short-term outlook remains neutral.
Here’s the breakdown:
- The S&P 500 index further extended its short-term uptrend yesterday.
- The CPI release will lead to a flat opening of the trading session.
- In my opinion, the short-term outlook is neutral.
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Thank you.
Paul Rejczak,
Stock Trading Strategist