S&P 500 Trades Along 5,200, CPI Remains in Focus

Stocks extend a consolidation ahead of tomorrow’s CPI data – which direction is next?

Monday’s trading session wasn’t a game-changer as the markets are eagerly awaiting tomorrow’s Consumer Price Index data. The S&P 500 index lost 0.04% yesterday, remaining slightly above the 5,200 level. Following upbeat jobs data last Friday, the market retraced most of Thursday's 1.2% decline, and yesterday, the trading range was noticeably tighter as the index remained near the Friday’s closing price.

Last Tuesday, 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 slightly worsened before Thursday’s and Friday’s volatility, as indicated by the last Wednesday’s AAII Investor Sentiment Survey, which showed that 47.3% of individual investors are bullish, while only 22.2% of them are bearish. 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.

This morning, the S&P 500 is expected to open slightly higher, with the futures contract trading up 0.2%. On Thursday, it broke its two-month-long upward trend line, as we can see on the daily chart.

S&P 500 Trades Along 5,200, CPI Remains in Focus - Image 1

Nasdaq 100 Remains Above 18,000

Last Thursday, the technology-focused Nasdaq 100 index rebounded close to its March 21 record high of 18,464.70, but then, it sold off, closing below the 18,000 level. On Friday, it retraced some of the decline and broke the 18,000 level again. The technology index continues to trade within a two-month-long consolidation.

S&P 500 Trades Along 5,200, CPI Remains in Focus - Image 2

VIX Dropped Towards 15

The VIX index, also known as the fear gauge, is derived from option prices. In late March, it was trading around the 13 level, and last week, market volatility increased, leading to an advance towards 16-17. Yesterday though, it went back closer to the 15 level, as stock prices were going sideways and the trading range tightened.

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 Trades Along 5,200, CPI Remains in Focus - Image 3

Futures Contract Remains Above 5,250

Let’s take a look at the hourly chart of the S&P 500 futures contract. On Thursday, it sold off to around 5,200, and on Friday, it bounced to around 5,270 following monthly jobs data release. This morning, it is extending a consolidation, with the support level at 5,240 and the resistance at 5,270.

S&P 500 Trades Along 5,200, CPI Remains in Focus - Image 5


Today, stock prices are poised to open slightly higher. The markets are awaiting the important Consumer Price Index release tomorrow, and we may see some more consolidation leading up to that announcement. It’s also worth noting that the earnings season is approaching in mid-month.

Last Tuesday, 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.”

On Thursday, 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 trading sideways ahead of the key inflation data tomorrow.
  • In the medium term, stock prices remain somewhat overbought, suggesting the potential for a correction.
  • In my opinion, the short-term outlook is neutral.

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Thank you.

Paul Rejczak,
Stock Trading Strategist