Stocks are likely to reach new record highs, but will the uptrend continue?
Stocks rallied ahead of the presidential elections yesterday, with the S&P 500 index closing 1.23% higher and breaking above recent local highs. This morning, the market is reacting very positively to Donald Trump’s win, and futures contracts point to a 2.2% higher opening for the index.
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 is expected to open much higher, likely reaching new record highs today. The recent consolidation was a bottoming pattern, as we can see on the daily chart.
Nasdaq 100 Rebounded Above 20,000
The Nasdaq 100 gained 1.32% yesterday, and this morning, it’s likely to open 3.2% higher, reaching close to the 20,600 level. Potential resistance is around 20,700, marked by the July 10 record high of 20,690.97.
VIX: Moving Back to 20
The VIX index, a measure of market volatility, broke above its recent range last week, reaching 23.42 On Thursday. It remained above the 20 level, reflecting heightened investor anxiety, but yesterday’s rally in stocks pushed the VIX lower, close to 20 again.
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: Record-Breaking Rally
The S&P 500 futures contract retraced its recent declines and reached new record highs following the election results. Support is around 5,900, with potential resistance at 6,000.
Conclusion
Stocks have entered a high-volatility period, as expected. This morning, the S&P 500 is set to open at or near a new record high, though there may be a pullback due to short-term overbought conditions. However, no negative signals are evident.
Yesterday, I noted “This week’s main events - the presidential election and the FOMC rate decision on Thursday – are likely to add significant volatility.” This proved accurate, and now the markets eagerly await tomorrow’s Fed release.
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 likely to reach a new record high following the presidential elections.
- The market’s focus will shift to the Fed rate decision tomorrow.
- In my opinion, the short-term outlook is neutral.
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Thank you.
Paul Rejczak,
Stock Trading Strategist