After the holiday pause, are stocks set to extend their short-term uptrend?
Stock prices closed higher on Friday, with the S&P 500 index gaining 1.00% ahead of Monday’s market pause and Donald Trump’s presidential inauguration. Today, the market is expected to open 0.4% higher, continuing its short-term uptrend.
Investor sentiment worsened, as shown by last Wednesday’s AAII Investor Sentiment Survey, which reported that only 25.4% of individual investors are bullish, while 40.6% of them are bearish.
The S&P 500 index approached previous local highs, as we can see on the daily chart.
Nasdaq 100 Extended Advances
The Nasdaq 100 gained 1.66% on Friday, retracing more of its earlier declines after breaking above the 21,000 level. Today, it is expected to open 0.5% higher. It still looks like a consolidation following the advances seen in November and December.
VIX Remains Above 15
On December 18, the VIX index, a measure of market volatility, surged to 28.32, its highest level since early August. After dropping below 15 in late December, the VIX rose again, and last Monday, it reached a high of 22.04.
On Friday, the VIX continued to hover along the 16 level, indicating moderate fear in the market.
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: Rebounding from 6,000
This morning, the S&P 500 futures contract is trading near the 6,050 level after rebounding from 6,000 overnight. The market initially sold off following tariff-related news from Donald Trump but quickly recovered. Resistance is now around 6,080-6,100, with the support at 6,000-6,020.
For now, the market continues to extend its consolidation.
Conclusion
Tuesday’s trading session is expected to begin on a positive note following yesterday’s presidential inauguration. Investors are looking forward to key quarterly earnings reports, including NFLX release tomorrow.
On January 6, in my Stock Price Forecast for January 2025, I wrote that “the stock market is poised for continued fluctuations following the post-election rally in November. Although the S&P 500 dipped by 2.5% last month, this appears to be just a correction of November’s gains.
Will the market resume its uptrend and reach new record highs? This appears likely at some point, driven by growing optimism ahead of Trump’s upcoming inauguration on January 20. However, rallies may provide selling opportunities, leading to a medium-term consolidation phase.”
For now, my short-term outlook is neutral.
Here’s the breakdown:
- The S&P 500 is expected to remain near local highs as the session is likely to start positively.
- The stock market is still 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