The S&P 500 achieved a fresh high recently, but surpassing the 4,800 mark proves to be a formidable challenge. The question now is whether the ongoing uptrend will persist.
Despite slight upward movement in stock prices on Friday, the S&P 500 index closed merely 0.08% higher, even in light of recent inflation data hinting at potential easing in monetary policy in the coming months. Nevertheless, the market did reach a new medium-term high of 4,802.40 before retracting some gains. As predicted on December 21, indicating a likely consolidation between 4,700 and 4,800, this prognosis remains accurate despite a brief dip below 4,700.
Over Thursday and Friday, the market exhibited a rebound from the 4,800 resistance level, suggesting a probable extension of consolidation following the November-December rally. To capitalize on such trading dynamics, it’s advisable to focus on shorter timeframes, seeking buying opportunities at support levels and selling at resistance levels.
In late December and early January, the S&P 500 experienced a sell-off, hitting its lowest point since December 13, a day marked by a pivotal shift in the Fed’s monetary policy. On Friday, the index reached a new yearly high, edging closer to the January 4, 2022, all-time high of 4,818.62.
Despite the recent fluctuations, investor sentiment remains bullish, with 48.6% of individual investors expressing optimism, according to last Wednesday’s AAII Investor Sentiment Survey. However, high bullish readings can indicate excessive complacency and a lack of fear in the market, making bearish readings potentially favorable for market upturns.
As of this morning, the S&P 500 futures contract is trading 0.2% lower, following a 0.1% loss yesterday amid low activity during the U.S. holiday weekend. The market is expected to open around 0.3% lower, possibly extending a short-term consolidation below the 4,800 level. Positive earnings from major banks before the opening further underscore the market’s anticipation of more corporate earnings announcements.
The market may witness further consolidation post the November-December rally, as indicated on the daily chart.
The Nasdaq 100 index, focused on technology, recently hit a new all-time high but experienced a short-term correction due to overbought conditions. Although it bounced back, the question of whether it will surpass the 17,000 mark remains open.
The VIX index, or the fear gauge, is close to previous lows, indicating reduced fear in the market. However, a declining VIX may also signal a higher probability of a market reversal.
Analyzing the hourly chart of the S&P 500 futures contract, it approached the crucial short-term resistance of around 4,840 on Friday. Currently trading around the 4,800 level, with support at 4,780, the market’s movement remains pivotal.
While stocks are forecasted to open slightly lower this week, the S&P 500 may extend consolidation below the 4,800 level. The uncertain trajectory whether a medium-term uptrend will resume or if the market will persist in a consolidation following the November December rally leaves investors eagerly awaiting quarterly corporate earnings releases. As of now, the short-term outlook remains neutral, and caution is advised due to the risk reward perspective. The market is positioned close to the 4,800 level, potentially attempting to reach the 2022 all-time high, but it seems more like a consolidation phase than the initiation of a new uptrend. Trading based on support and resistance levels during this period of short-term uncertainty and volatility may be a prudent approach.
