Will tomorrow's CPI data push stock prices to new records?
Stocks rebounded on Tuesday, with the S&P 500 index closing 0.97% higher following Monday’s 1% decline. It approached the September 26 record high of 5,767.37 but remained within its recent trading range. This morning, it is expected to open virtually flat, as indicated by futures contracts. Investors are awaiting the release of the FOMC Meeting Minutes at 2:00 p.m. and tomorrow's key Consumer Price Index data.
I still think the market is forming a top, and the seasonal pattern suggests the low of the correction may occur in October.
Investor sentiment slightly worsened last week, as shown by last Wednesday’s AAII Investor Sentiment Survey, which reported that 45.5% of individual investors are bullish, while 27.3% of them are bearish, up from 23.7% last week.
The S&P 500 remains close to its all-time high, as we can see on the daily chart.
Nasdaq 100: Above 20,000 Again
The Nasdaq 100 gained 1.55% yesterday, driven by a rally in NVDA stock, among others. It broke above the 20,000 level again and approached the resistance level of 20,250. This morning, the Nasdaq 100 is expected to open 0.1% lower.
VIX Reversing from New High
On September 6, the VIX index, a measure of market fear, reached a local high of 23.76. On the previous Thursday, it fell to 14.90 as stock prices were advancing toward new record highs. However, yesterday the VIX hit 23.14 before pulling back below 22.
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: Near 5,800
Let’s take a look at the hourly chart of the S&P 500 futures contract. Yesterday, it rebounded following Monday’s decline. The market continues to trade within a consolidation, with resistance at 5,800-5,820. Investors are awaiting the key inflation data tomorrow, and both bullish and bearish scenarios could unfold depending on that data.
Conclusion
This morning, the S&P 500 index is likely to open virtually flat following recent volatile movements. The market may attempt to reach its late September record high. Investors are awaiting the Consumer Price Index release tomorrow and the upcoming quarterly earnings season.
Last Tuesday, I wrote “The key question is whether the uptrend will continue despite overbought conditions. While no clear negative signals have appeared, the rally seems overstretched.” The question remains: is this a topping pattern before some more meaningful downward correction or just a consolidation before another leg up?
I opened a speculative short position in the S&P 500 futures contract on September 16.
In my Stock Price Forecast for October 2024, I wrote “the market extended its uptrend in September after rebounding from the early August low. No clear negative signals have surfaced; however, a correction could still occur. Historically, October is a seasonally weak month, especially during its first weeks. Will the stock market sell off soon? Although monetary policy easing supports the bulls, uncertainty surrounding geopolitical risks and the upcoming presidential election may still weaken sentiment.”
For now, my short-term outlook remains bearish.
Here’s the breakdown:
- The S&P 500 is likely to continue its consolidation ahead of tomorrow's key CPI data.
- The market may still be forming a topping pattern before a downward correction.
- In my opinion, the short-term outlook is bearish.
The full version of today’s analysis - today’s Stock Trading Alert - is bigger than what you read above, and it includes the additional analysis of the Apple (AAPL) stock and the current S&P 500 futures contract position. I encourage you to subscribe and read the details today. Stocks Trading Alerts are also a part of our Diamond Package that includes Gold Trading Alerts and Oil Trading Alerts.
And if you’re not yet on our free mailing list, I strongly encourage you to join it - you’ll stay up-to-date with our free analyses that will still put you ahead of 99% of investors that don’t have access to this information. Join our free stock newsletter today.
Thank you.
Paul Rejczak,
Stock Trading Strategist