Stock Price Forecast for May 2024

Stocks dipped over 4% in April: Will May bring more declines or a reversal?

Stocks sold off yesterday, as the Fed policy fears took over after a higher-than-expected Employment Cost Index release. The S&P 500 index closed 1.57% lower, retracing its recent advances and getting back closer to the 5,000 level.

On previous 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. Last week, stock prices rebounded as tensions in the Middle East somewhat eased, and investors shifted their focus to the quarterly earnings releases.

This morning, the market is set to open slightly lower, with futures contracts trading 0.2% down. Today, the market awaits a series of key economic data. The ADP Non-Farm Employment Change came in at +192,000, which was slightly higher than expected, and after the opening of the index we will get the PMI numbers along with the JOLTS Job Openings release. The highlight is the FOMC release at 2:00 p.m., followed by the Fed Press Conference at 2:30 p.m.

Yesterday marked the end of April for the stock market. It was a weak month, with the S&P 500 breaking its five-month winning streak, declining by 4.16% compared to the end of March. This indicates a correction of the medium-term uptrend.

The question arises: Is this merely a correction or the beginning of a more significant downtrend? It's difficult to determine at this point. Last month, hopes for a Fed pivot were dashed as new data reignited inflation fears, and geopolitical tensions added further uncertainty. However, as of today, it appears the market is only correcting a rally that began in November.

Last week, the sentiment worsened again, as indicated by the Wednesday’s AAII Investor Sentiment Survey, which showed that only 32.1% of individual investors are bullish, while 33.9% 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.

The S&P 500 sharply reversed its recent advances yesterday, as we can see on the daily chart.

Stock Price Forecast for May 2024  - Image 1


S&P 500 - Broken Winning Streak

In March, the S&P 500 index gained 3.1%, but in April, it lost 4.2%, dipping below February's closing point.

In my Stock Price Forecast for March, I noted that “there is a possibility that the market may enter a correction or consolidation phase at some point.” Now, it's evident that the market is undergoing a correction of its multi-month rally since November. While this short-term downtrend may extend, it appears to be a correction rather than the start of a new medium-term downtrend.

Stock Price Forecast for May 2024  - Image 2

Nasdaq 100 Lost Almost 2%

The technology-focused Nasdaq 100 index closed 1.92% lower yesterday, retracing some of its recent rebound from the previous Friday's local low of 16,973.94. The 18,000 level continues to act as a key resistance. Earnings releases have resulted in mostly sideways trading. The market will be waiting for the important release from AAPL tomorrow.

Stock Price Forecast for May 2024  - Image 3

VIX Stays Near 15 Despite Market Sell-Off

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 previous Friday, it reached a high of 21.4, the highest since late October, signaling fear in the market. By Friday last week, it retraced to 15. On Monday, it closed below that level, suggesting less fear, but yesterday it bounced back above it. Overall, it remained relatively low despite significant moves in stocks.

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.

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FANG Stocks – Failed Rebound?

The NYSE FANG+ (NYFANG) index offers exposure to 10 highly-traded tech mega-cap stocks, including Apple, Microsoft, Amazon, Alphabet, Nvidia, and Tesla. Let’s examine the daily chart of this index.

On April 2, I noted, “It clearly shows, that the uptrend was exhausted in the end of February, and since then, it has traded sideways, fluctuating between the support level of 9,700 and the resistance level of 10,200.”

With the second half of April marking the beginning of earnings season, it will be interesting to observe how tech stocks perform and whether they could potentially resume their long-term uptrend or signal a correction in the broader market.

In early April, the FANGs hit a new record high of 10,303.39, only to witness a fake breakout followed by a clear downward reversal. It then sold off to a local low of 9,234.29, breaking below the mentioned support level at 9,700. Despite a recent market rebound, it retraced once again yesterday, returning to the key 9,700 level.

So, uncertainty prevails as earnings fail to drive FANG stock prices as they once did, extending a three-month consolidation phase.

Stock Price Forecast for May 2024  - Image 5


Futures Contract Sold Off Below 5,050

Let’s take a look at the hourly chart of the S&P 500 futures contract. This week, it was mostly moving sideways after last week's volatility, but yesterday’s economic data pushed the market lower, breaking its narrow trading range. The futures contract dropped to a local low near 5,038, retracing nearly all of last week’s rebound from Thursday's local low.

Investors are eyeing key data releases, including today’s Fed and Friday’s jobs report. The resistance level is now at 5,100, and the support level is at 5,000-5,020.

Stock Price Forecast for May 2024  - Image 7


The S&P 500 index rebounded last week, largely driven by quarterly earnings releases from major tech companies. However, yesterday saw the bears regain control, with the index dropping over 1.5%. Recently, the S&P 500 was extending a correction from the March 28 record high of 5,264.85 on Middle East tensions, strong U.S. dollar. On previous Friday, it sold off below the important 5,000 level, and last week, it retraced a much of those declines.

This morning, the stock market is poised to open slightly lower ahead of the important Fed release at 2:00 p.m. Expect significant volatility in stocks during this event and the subsequent Press Conference at 2:30 p.m.

Yesterday, I mentioned “While earnings reports offer cause for cautious optimism, it remains uncertain whether last week's gains signify a true upward reversal or simply a correction of recent declines.” The pullback in stock prices brought even more uncertainty, with both bullish and bearish scenarios seeming likely depending on market reactions to data and earnings.

Where will the market go in May? There's a popular saying: 'Sell in May and go away,' but statistics don't consistently support such clear seasonal patterns or cycles. The safe bet for May is likely sideways trading, with investors digesting recent data suggesting that inflation may not be transitory, and the Fed could maintain its relatively tight monetary policy. However, economic data isn't entirely negative, and strong earnings from companies may continue to fuel the bull market.

For now, my short-term outlook remains neutral.

Here’s the breakdown:

  • The S&P 500 is poised for a slightly lower open, though more uncertainty and volatility looms with the Fed's monetary policy update today.
  • On Friday, April 19, stock prices were the lowest since February, indicating a correction of the medium-term advance.
  • In my opinion, the short-term outlook is neutral.

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Paul Rejczak,
Stock Trading Strategist