Stocks have retraced their post-Fed sell-off. Will they continue to rise from here?
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Stock prices extended their rebound on Tuesday despite a shorter-than-usual trading day, with the S&P 500 index closing 1.10% higher, retracing most of last Wednesday’s sell-off. The market has returned to the starting point of the Fed-induced decline. This morning, the S&P 500 is expected to open virtually flat, likely moving sideways along its previous consolidation.
On December 9, I noted that “the S&P 500 index reached a new record high of 6,099.97 on Friday. The key question remains whether the uptrend will continue, despite signs of short-term overbought conditions.” Last Wednesday’s sharp decline confirmed the market was forming a topping pattern, as fluctuations led to a break lower. However, the rebound suggests the market could end the year on a more positive note.
Investor sentiment has worsened despite a rebound, as shown by the yesterday’s AAII Investor Sentiment Survey, which reported that 37.8% of individual investors are bullish, while 34.1% of them are bearish - an increase from 31.4% last week.
The S&P 500 index climbed back above the 6,000 level on Tuesday, as we can see on the daily chart.
S&P 500 Futures Contract: Pulling Back from 6,100
This morning, the S&P 500 futures contract pulled back from the 6,100 level, showing some uncertainty following the Monday-Tuesday rebound. The resistance is at 6,100, while the support remains at 6,000-6,050. The market may move sideways, as investors take profits following the recent rally.
Conclusion
Stocks are set to open unchanged this morning, as the market seems uncertain following the rally. The question is: Will the S&P 500 continue higher and reach new records, or is this rebound part of a broader consolidation? Uncertainty and some profit-taking may dominate the final trading days of the year.
In my Stock Price Forecast for December 2024, I wrote “the stock market experienced a strong rally in November, driven by the presidential election outcome. While December is historically a bullish month, increased volatility and a short-term correction remain likely.”
For now, my short-term outlook is neutral.
Here’s the breakdown:
- The S&P 500 extended its rebound on Tuesday.
- The market is 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