Stocks are set to open higher following the release of monthly jobs data, but will the uptrend continue?
Stock prices were once again little-changed on Thursday, with the S&P 500 index closing 0.17% lower, remaining near the 5,700 level. On Tuesday, I mentioned that the market “may see some more short-term uncertainty and a sideways trading action.”, and it’s proving correct.
This morning, the S&P 500 is likely to open 0.4% higher following a stronger-than-expected Nonfarm Payrolls release, which came in at +254,000 vs. the expected +147,000. The market is set to retrace some of its recent declines, yet it remains within a consolidation phase.
Investor sentiment slightly worsened, as shown by the Wednesday’s AAII Investor Sentiment Survey, which reported that 45.5% of individual investors are bullish, while 27.3% of them are bearish, up from 23.7% last week.
The S&P 500 continues to trade around the 5,700 level, as we can see on the daily chart.
Nasdaq 100: Consolidation Below 20,000
The Nasdaq 100 continued to trade sideways yesterday, closing 0.05% lower. Recently, it pulled back from resistance at 20,250, and on Tuesday, it traded as low as 19,622. This morning, the Nasdaq 100 is expected to open 0.7% higher following the monthly jobs data release.
VIX Consolidating Around 20
On September 6, the VIX index, a measure of market fear, reached a local high of 23.76. It was indicating elevated fear among investors. However, a stock rebound followed by a record-breaking rally pushed the VIX lower. Last Thursday, it fell to 14.90, its lowest level since late August. However, with stock prices pulling back on Tuesday, the VIX jumped back to around 20. Yesterday, despite a relatively calm trading session, the VIX hit a local high of 20.75.
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: More Sideways Trading
Let’s take a look at the hourly chart of the S&P 500 futures contract. Since Tuesday’s drop, the market has been moving sideways, trading within another consolidation phase. The support level remains around 5,725, with the next support at 5,680–5,700, marked by mid-September fluctuations. The market may still be forming a topping pattern ahead of a potential correction. Resistance remains at 5,780–5,800. This morning’s jobs data led to an advance, but the market remains within consolidation.
Conclusion
Today’s jobs data release is likely to result in a higher opening for the S&P 500 index. Will it approach the record high again? For now, the market still appears to be in consolidation mode.
On Tuesday, I wrote “The key question is whether the uptrend will continue despite overbought conditions. While no clear negative signals have appeared, the rally seems overstretched.” The question remains: is this a topping pattern before some more meaningful downward correction or just a consolidation before another leg up?
I opened a speculative short position in the S&P 500 futures contract on September 16.
In my Stock Price Forecast for October 2024, I wrote “the market extended its uptrend in September after rebounding from the early August low. No clear negative signals have surfaced; however, a correction could still occur. Historically, October is a seasonally weak month, especially during its first weeks. Will the stock market sell off soon? Although monetary policy easing supports the bulls, uncertainty surrounding geopolitical risks and the upcoming presidential election may still weaken sentiment.”
For now, my short-term outlook remains bearish.
Here’s the breakdown:
- The S&P 500 is likely to open higher after the monthly jobs report.
- The market may still be forming a topping pattern before a downward correction.
- In my opinion, the short-term outlook is bearish.
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Paul Rejczak,
Stock Trading Strategist