Will stocks continue their uptrend, or are they forming another topping pattern?
Thursday’s trading session didn’t change much for the stock market, with the S&P 500 index closing the day 0.04% lower after a day of sideways price action. Yesterday, the market returned to the starting point of the Fed-induced decline. This morning, the S&P 500 is expected to open 0.3% lower, extending a consolidation above the 6,000 level.
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 Wednesday’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 has returned to its early-to-mid-December consolidation, as we can see on the daily chart.
Nasdaq 100: Nearing 22,000
The Nasdaq 100 index closed 0.13% lower on Thursday, following a rebound from last Friday’s local low of 20,914. It retraced most of its recent declines, reaching as high as 21,838. Today, the technology index is expected to open 0.4% lower, likely consolidating after the rebound.
VIX Moved Below 15
Last Wednesday, the VIX index, a measure of market volatility, surged to 28.32, its highest level since early August. It confirmed heightened fear in the market as stocks sold off. On Tuesday and Thursday, it dropped below 15 as stock prices retraced their declines.
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: Consolidation Below 6,100
This morning, the S&P 500 futures contract continues to trade within a consolidation, remaining below the 6,100 resistance level. The nearest support remains at 6,000-6,050. The market may continue moving sideways as investors take profits following the recent rally.
Conclusion
The S&P 500 index is expected to open slightly lower today, extending short-term consolidation after rebounding from last Friday’s low. The key question remains: 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 is moving sideways after rebounding from last Friday’s low.
- The market is seeing increased volatility following the post-election rally.
- In my opinion, the short-term outlook is neutral.
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 (with a single-time 16-day free trial). 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