Stocks extended their rebound on Friday, with the S&P 500 index reaching a local high of 5,358.67 and closing 0.47% higher. The market has retraced more of its recent declines, but is this the start of a new uptrend or just a correction before another leg lower? Today, the S&P 500 is likely to open 0.2% higher, as investors await key inflation data this week: the Producer Price Index tomorrow and the crucial Consumer Price Index on Wednesday.
The investor sentiment worsened last week, as indicated by Wednesday’s AAII Investor Sentiment Survey, which showed that 40.5% of individual investors are bullish, while 37.5% of them are bearish – up from 25.2% last week.
S&P 500 retraced all losses from last week
Compared to the previous Friday’s closing price, the index lost just 0.04%, but last Monday, it was trading over 4% lower. Overall, it was a positive week for stocks, and such a rebound favors the bullish side in the near future.
Nasdaq 100: Above 18,500
The technology-focused Nasdaq 100 gained 0.54% on Friday, extending its Thursday rally of over 3%. It recovered from Wednesday’s sell-off and closed the week 0.4% higher. This morning, the Nasdaq 100 is likely to open 0.3% higher, slightly extending its short-term uptrend.
It’s likely that the market will experience more consolidation, although many investors hope for a V-shaped rally from the current levels.
VIX is closer to 20 again
The VIX index, a measure of market fear, accelerated its advance on previous Friday, nearing 30, and last Monday, it reached as high as 65.73—the highest level since the 2008 financial crisis and the COVID sell-off in 2020. This reflected significant fear in the market. However, on Friday, the VIX dipped closer to the 20 level, further reducing market volatility.
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 creeping higher
Let’s take a look at the hourly chart of the S&P 500 futures contract. Last Monday, it traded as low as 5,120, rebounded to around 5,360 on Wednesday, then pulled back below 5,200 before rebounding to local highs above 5,380. However, Friday’s trading action was much calmer, and volatility decreased. Is this a sign of a failing rebound? The key resistance level remains around 5,430, marked by the previous local lows.
