Will stock prices correct their recent advances?
Stock prices advanced after Monday's trading session started, with the S&P 500 reaching a new record high of 6,336.08, but they soon exhausted the rally and pulled back. Overall, the S&P 500 index closed 0.14% higher.
A handful of mega-cap tech stocks continue to support the bulls, but much will depend on this week's earnings reports, which will take center stage. Tomorrow, earnings from Tesla (TSLA) and Alphabet (GOOG), among others, will be released and closely watched.
This morning, the S&P 500 is likely to open virtually flat, as futures contracts indicate. The market is set to continue its recent fluctuations.
Investor sentiment has slightly deteriorated, as reflected in last Wednesday’s AAII Investor Sentiment Survey, which reported that 39.3% of individual investors are bullish, while 39.0% are bearish.
The S&P 500 continues to trade near record highs, as the daily chart shows.
Nasdaq 100 Extended Rally, but Watch for Topping Signs
The Nasdaq 100 closed 0.5% higher on Monday after reaching a new record high of 23,264.45. The index has recently been driven by record highs in Nvidia and Microsoft, but yesterday, Apple stock fueled additional gains.
While no strong bearish signals have emerged yet, the recent price action may be forming a potential topping pattern.
VIX Remains Near Lows
The Volatility Index dropped to a local low of 16.28 on Friday, still above the prior Thursday low of 15.70. It briefly rebounded to 19.50 during last Wednesday’s intraday dip before continuing a consolidation.
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: Pulling Back from New High
This morning, the S&P 500 futures contract is trading near the 6,350 level again after pulling back from a new all-time high yesterday. No negative signals are evident; however, the market remains in a potential topping pattern.
Resistance is near 6,375, while support is at 6,300-6,320.
Markets remain highly sensitive to tariff-related news and could stay volatile in the near term.
Crude Oil Update: Continuing Decline
Crude oil closed 0.15% lower on Monday, retracing more of its recent advances. The recent rebound was fueled by a larger-than-expected draw in U.S. inventories reported by the EIA last Wednesday. However, mixed signals from the economy are pushing prices down. Today, crude oil prices are 0.5% lower, declining toward the important support level of $65.
However, prices are lower again today.
For oil markets specifically, these developments are worth monitoring:
- Oil prices decline amid US-EU trade tensions - the decline is driven by concerns that a potential trade war between the U.S. and European Union could hurt economic growth and energy demand in these major consuming regions.
- Washington is reportedly demanding at least 15% tariffs on EU goods, with even higher levies planned for other partners including 25% on Japan, 35% on Canada, and 50% on Brazil. These tariffs are set to take effect from August 1st, described as a "hard deadline" by White House officials, raising concerns about disruption to the global economy and oil demand.
- The European Union's stricter sanctions against Russia's oil industry have had little effect on crude prices, as Russia has built a shadow fleet of oil tankers to circumvent the G-7 price cap. The EU has sanctioned 444 vessels in Russia's shadow fleet, but markets remain unconvinced about the effectiveness of these measures in constraining Russian oil exports.
Oil: Below $66
Last Wednesday, crude oil rebounded from $65-66 support, briefly moving above a month-long trend line and reaching just over $67. Resistance remains near $68-69. Today, oil is pulling back toward the $65 support again, once again breaching the upward trend line.
My short-term outlook on oil remains neutral, and no positions are currently justified from a risk/reward standpoint.
Conclusion
Today, the S&P 500 index is likely to extend a short-term consolidation, remaining near new record highs. The key question remains: are these fluctuations a topping pattern or simply an uptrend similar to "climbing a wall of worry"? However, a lack of strong bullish catalysts may limit further upside in the near term.
Investors are now turning their attention to corporate earnings, with some major major tech companies scheduled to report tomorrow (GOOG, TSLA).
Here’s the breakdown:
- The S&P 500 continues to trade near its record highs around 6,300.
- The recent rally extended gains for those who bought based on my Volatility Breakout System.
- There are no clear bearish signals yet, but a deeper downward correction is not out of the question at some point.
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Thank you.
Paul Rejczak
Stock Trading Strategist
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