S&P 500 Extended Gains – Is the Downtrend Over?

Stock prices rebounded, but has the trend truly reversed this week?

Stocks continued their rebound on Tuesday, with the S&P 500 index gaining 1.20% and extending the advance after breaking above 5,000 on Monday. On Friday, the index hit a new medium-term low of 4,953.56. This marked its lowest level since late February, with a decline of over 311 points or 5.9% from the record high of 5,264.85 on February 28. This week, stock prices rebounded as tensions in the Middle East somewhat eased, and investors shifted their focus to the quarterly earnings releases.

Today, expectations before the open are slightly positive, with the futures contract gaining 0.2% following yesterday’s earnings release from TSLA. The stock is likely to open almost 12% higher. After today's session closes, we'll receive a release from META, and tomorrow, from GOOG, INTC, MSFT.

In my Stock Price Forecast for April, I noted, “Closing the month of March with a gain of 3.1%, the question arises: Will the S&P 500 further extend the bull market in April, or is a downward correction on the horizon? From a contrarian standpoint, such a correction seems likely, but the overall trend remains bullish.”

The investor sentiment has worsened recently, as indicated by the last Wednesday’s AAII Investor Sentiment Survey, which showed that 38.3% of individual investors are bullish, while 34.0% of them are bearish, a big increase from the previous week's 24%. The AAII sentiment is a contrary indicator in the sense that highly bullish readings may suggest excessive complacency and a lack of fear in the market. Conversely, bearish readings are favorable for market upturns.

On Friday, the market broke a significant support level, marked by the daily gap up from February 22 (4,983.21-5,038.83), but on Monday and yesterday, it retraced some of the decline and closed above that support level, as we can see on the daily chart.

S&P 500 Extended Gains – Is the Downtrend Over? - Image 1

Nasdaq 100 Extending the Bounce

Recently, the technology-focused Nasdaq 100 index broke the 18,000 level, and on Friday, it briefly dipped below the 17,000 level, reaching a local low of 16,973.94.

Yesterday, it traded closer to the 17,500 level again, gaining 1.51%. The resistance level is now at 17,800, marked by the previous lows. Investors will be eagerly awaiting more earnings releases from key big tech companies.

S&P 500 Extended Gains – Is the Downtrend Over? - Image 2

VIX Deepening Decline

The VIX index, also known as the fear gauge, is derived from option prices. In late March, it was trading around the 13 level. However, recent market volatility has led to an increase in the VIX. On Friday, it reached a high of 21.4, the highest since late October, indicating fear in the market. This week, it has been retracing that advance, reaching below the 16 level yesterday.

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.

S&P 500 Extended Gains – Is the Downtrend Over? - Image 3


Futures Contract Trades Above 5,100

Let’s take a look at the hourly chart of the S&P 500 futures contract. Yesterday, it extended a rebound from Friday’s low of around 4,964, breaking the resistance level of around 5,080-5,100. This morning, it’s trading within a consolidation following a two-day-long rally. The next resistance level is at around 5,150.

S&P 500 Extended Gains – Is the Downtrend Over? - Image 5


The S&P 500 index accelerated its downtrend last week, extending a correction from the March 28 record high of 5,264.85 on Middle East tensions, strong U.S. dollar. On Friday, it sold off below the important 5,000 level, and this week, it rebounded and retraced some of the declines.

Yesterday, the S&P 500 reached a local high of 5,076.12. Was it an upward reversal? It still looks like an upward correction or consolidation following an almost 6% decline from the recently acquired new record high.

However, it might be a time for cautious optimism, as earnings releases appear to be driving stock prices higher.

On April 2, I wrote that “In April, we will see a usual series of important economic data, but with the Fed leaning towards easing monetary policy, we should perhaps pay more attention to the quarterly earnings season. However, good earnings may be met with a profit-taking action this time. The market appears to be getting closer to a correction.”

Then, I added: “It appears that profit-taking is happening. Is this a new downtrend? Likely not, however, a correction towards 5,000-5,100 is possible at some point.”

For now, my short-term outlook remains neutral.

Here’s the breakdown:

  • The S&P 500 is likely to fluctuate following Monday’s-Tuesday’s rebound; earnings releases remain in focus.
  • On Friday, stock prices were the lowest since February, indicating a correction of the medium-term advance.
  • 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. 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