The S&P 500 continued to decline, though a rebound may be on the horizon.
My speculative short position in the S&P 500 futures contract from August 20, is in profit.
Stock prices fluctuated on Thursday, with the S&P 500 index closing 0.30% lower after reaching a new local low of 5,480.54. However, it managed to close above the 5,500 level. This morning, the markets received monthly jobs data, and the reaction to the lower-than-expected Nonfarm Payrolls release (+142,000 vs. +164,000) was slightly positive. The S&P 500 is likely to open 0.2% lower, as indicated by futures contracts.
On August 21, I wrote “Recently, the market has continued to climb following the brief Yen crisis at the start of August, surprising many traders. The question is whether the market will continue to new highs or reverse course and retrace the recent rally. I think there is a chance the market will reverse its course and correct some of the advances, retracing a large part of the rally.”
Despite last Thursday's decline, investor sentiment remained elevated, as shown by the AAII Investor Sentiment Survey on Wednesday, which reported that 45.3% of individual investors are bullish, while 24.9% of them are bearish, down from 27.0% last week.
The S&P 500 index continues to trade along the 5,500 level, as we can see on the daily chart.
Nasdaq 100: at a Short-Term Support of 18,800
The technology-focused Nasdaq 100 gained 0.05% yesterday, extending its short-term consolidation. It continues to trade above the 18,800 level, a support marked by previous local lows. On the other hand, the resistance level for the Nasdaq 100 remains at 19,200, marked by previous lows. Today, the Nasdaq 100 is likely to open 0.5% lower.
VIX Remains Near 20
On Wednesday, the VIX index, a measure of market fear, reached a local high of 23.31, and yesterday, it pulled back to 20. Overall, the VIX indicates elevated fear among investors.
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: Below 5,500
Let’s take a look at the hourly chart of the S&P 500 futures contract. On Tuesday and on Wednesday, it traded within a short consolidation, but yesterday, the market broke lower, ending a flat correction of the short-term downtrend. This morning the contract is trading below 5,500 following monthly jobs data. The resistance is now at 5,500-5,520, marked by the recent lows, and the support is at 5,450, among others.
Conclusion
The S&P 500 traded sideways yesterday and is poised to open 0.2% lower this morning. While sentiment worsened overnight, monthly jobs data slightly improved the situation. The market may attempt to rebound, but the short-term downtrend seems far from over. Investors are bracing for the key CPI release next Wednesday and the FOMC rate decision on September 18.
I am maintaining a speculative short position in the S&P 500 futures contract from August 20.
On Wednesday, in my Stock Price Forecast for September 2024, I noted that, “the market experienced significant volatility in August, with a roller-coaster ride that included a sell-off to the August 5 local low and a subsequent advance, leading to a consolidation near the record high. (…) sharp reversal suggests more volatility in September. Last month, I wrote that ‘August is beginning on a very bearish note, but the market may find a local bottom at some point.’ The same could be said today, and September will likely not be entirely bearish for stocks.”
For now, my short-term outlook remains bearish.
Here’s the breakdown:
- The S&P 500 index extended its declines ahead of monthly jobs data and next week’s CPI report.
- The market is still likely to continue the short-term downtrend.
- In my opinion, the short-term outlook is bearish.
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Thank you.
Paul Rejczak,
Stock Trading Strategist