Will stocks reach new record highs amid the AI earnings frenzy, or is the market overbought?
Stock prices rebounded on Wednesday, with the S&P 500 index closing 0.47% higher after bouncing from the 5,800 level again. On Tuesday, the index failed to reach Monday’s record high of 5,871.41 and reversed lower. However, today it may get another chance at reaching a new record high, as sentiment improved following the TSMC (TSM) earnings release, which is likely to boost NVDA stock price at the open. The S&P 500 index is expected to open 0.5% higher, as indicated by futures contracts. Sentiment remained quite bullish following the release of Retail Sales and Unemployment Claims data at 8:30 a.m. and the ECB Rate Decision at 8:15 a.m.
Investors are anticipating more quarterly reports, including NFLX’s earnings, which will be released after today's session closes.
Despite more advances of the stock market, investor sentiment slightly worsened, as shown by the yesterday’s AAII Investor Sentiment Survey, which reported that 45.5% of individual investors are bullish, while 25.4% of them are bearish, up from 20.6% last week.
The S&P 500 continues trading near its new record high, as we can see on the daily chart.
Nasdaq 100 Managed to Stay Above 20,000
The Nasdaq 100 gained just 0.07% on Wednesday, after declining by 1.4% on Tuesday. However, it rebounded from the 20,000 level, and this morning, it is poised to open 0.9% higher. The support level remains at 20,000, while resistance is around 20,400-20,600.
On Tuesday, I wrote that “tech stocks may experience a period of uncertainty as investors await quarterly earnings and future outlooks.” That still holds true.
VIX: Fluctuating Around 20
On September 6, the VIX index, a measure of market fear, reached a local high of 23.76. On September 26, it fell to 14.90 as stock prices were advancing toward new record highs. Recently, the VIX has been fluctuating around the 20 level, signaling some fear in the market.
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: Near the Record High Again
Let’s take a look at the hourly chart of the S&P 500 futures contract. It’s advancing towards a new record high this morning, breaking above 5,900. Earnings releases, the ECB Rate Decision, and economic data have pushed it higher, though it remains slightly below the record high of 5,919. The support level is now at 5,850, marked by short-term lows.
Conclusion
Stock prices are likely to open higher this morning, retesting Monday's record highs. While there are no clear negative signals at present, the market may fluctuate after its recent rally. Today’s rally could be part of a short-term consolidation. Tech stocks appear poised for further gains, but the Nasdaq 100 remains well below its July record high.
For now, my short-term outlook is neutral.
Here’s the breakdown:
- The S&P 500 is likely to open higher, but a new record high remains uncertain.
- Despite clear overbought conditions, the market continued to rise. Since Tuesday’s pullback, it may be poised for sideways trading.
- In my opinion, the short-term outlook is neutral.
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Paul Rejczak,
Stock Trading Strategist