Will stocks rebound after the presidential elections, or is this just a brief pause in a downtrend?
Stock prices moved sideways on Monday, extending their short-term consolidation after last Thursday's pullback. The S&P 500 index closed 0.28% lower, fluctuating below the 5,750 level. Today, the market is set to open 0.2% higher, but investors are awaiting the key event: the presidential elections.
Before the Thursday’s decline last week, individual investor sentiment improved slightly, as shown in last Wednesday’s AAII Investor Sentiment Survey, which reported that 39.5% of individual investors are bullish, while 30.9% of them are bearish, up from 29.9% last week.
The S&P 500 remains near its recent lows, as we can see on the daily chart.
Nasdaq 100: Slightly Below 20,000
The Nasdaq 100 lost 0.3% on Monday, after gaining 0.7% on Friday. The technology sector continues to fluctuate following Thursday’s 2.4% sell-off. Support for the Nasdaq 100 remains around 19,600, near early October lows, and it is likely to open 0.2% higher this morning, further extending its consolidation around the 20,000 level.
VIX Remains Elevated
The VIX index, a measure of market volatility, broke above its recent range last week, reaching 23.42 On Thursday. It remains above the 20 level, reflecting heightened investor anxiety.
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: More Fluctuations and Expected Volatility
The S&P 500 futures contract broke below its recent consolidation range on Thursday and has since fluctuated near the 5,750 level. Support is around 5,725, near early October lows, and resistance remains at 5,800. For now, stocks appear to be in a consolidation phase within a downtrend.
On Friday, I wrote that “a rebound or consolidation may begin soon, especially with the upcoming presidential elections likely to add volatility” This has largely held true, but volatility is expected to increase after today's session as election results come in.
Conclusion
Today’s trading session is likely to open slightly higher, and further consolidation may occur ahead of the presidential election, with results expected after the session closes.
On Friday, I noted “With earnings season nearly over, the market will focus on economic data; this morning’s jobs report surprised to the downside, initially boosting the market as investors hope for a quicker monetary easing by the Fed.” This week’s main events - the presidential election and the FOMC rate decision on Thursday – are likely to add significant volatility.
In my Stock Price Forecast for November 2024, I wrote “The key question is: Will this sell-off mark the start of a medium-term downtrend, or is it merely a downward correction within an uptrend? For now, it appears to be a correction, but next week’s presidential elections could add to volatility.”
For now, my short-term outlook is neutral.
Here’s the breakdown:
- The S&P 500 is moving sideways, with potential volatility ahead.
- The market is focused on presidential elections as earnings season winds down.
- In my opinion, the short-term outlook is neutral.
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Thank you.
Paul Rejczak,
Stock Trading Strategist