Stocks rebounded and continued to consolidate. Which direction will they take next?
Stocks rebounded on Wednesday, with the S&P 500 index closing 0.82% higher, retracing most of its recent declines. The market reacted to the Consumer Price Index release, which met expectations. However, this morning, the S&P 500 is likely to open 0.2% lower after worse-than-expected Producer Price Index and Unemployment Claims data.
On Monday, 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.” Monday’s and Tuesday’s pullback still appear to be a short-term correction or perhaps the beginning of a consolidation phase.
Investor sentiment has worsened slightly. as shown in yesterday’s AAII Investor Sentiment Survey, which reported that 43.3% of individual investors are bullish, while 31.7% of them are bearish - an increase from 30.7% last week.
The S&P 500 continues to trade along its upward trendline, as we can see on the daily chart.
Nasdaq 100: New Record High
The Nasdaq 100 index outperformed the broader market yesterday, reaching a new record high of 21,784.71 and closing 1.85% higher. Advances in ‘FANG’ stocks, led by GOOG, META, and TSLA, fueled the rally. However, the Nasdaq 100 is expected to open 0.5% lower today and may enter a short-term consolidation.
There are no immediate negative signals, but short-term overbought conditions could lead to a correction.
VIX Dipped Below 14
The VIX index, a measure of market volatility, dropped to a new local low of 12.70 last Friday, its lowest since early July. Yesterday’s stock price advance caused the VIX to pull back below 14, signaling less 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 Fluctuate
The S&P 500 futures contract rebounded yesterday but is pulling back this morning due to the economic data. Resistance remains in the 6,100–6,110 range, with support at 6,050, the previous high. For now, the market appears to be consolidating.
Conclusion
Thursday’s trading session is set to open slightly lower, and the market is likely to fluctuate near record highs. After a strong rally, the market seems to be consolidating. A rotation within stocks continues, with some reaching record highs while recent leaders are lagging.
Last Monday, 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 likely to continue its short-term consolidation.
- The market is still 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