Stocks: Mixed Expectations Post Earnings, Jobs Data

The S&P 500 is poised to stay near 4,900 level; is there any bullish momentum left?

The stock market should open slightly higher today, due to quarterly earnings reports from companies, although optimism has waned following the release of labor market data. The S&P 500 index is expected to get back above 4,900 level; however, profit-taking may be expected during the day.

Earlier this week, the market continued its uptrend following Monday’s breakout above 4,900 level. The upward momentum has been fueled by earnings releases and expectations of a more accommodative monetary policy from the Federal Reserve. However, on Wednesday, the Fed's pivot in monetary policy became less obvious, leading to a sell-off in stocks. On Wednesday, stock prices reacted negatively to the release of the Fed's monetary policy and Jerome Powell's press conference. The S&P 500 index sold off to a local low of around 4,845. However, on Thursday, earnings releases drove prices back up, with the index gaining 1.25%.

Investor sentiment significantly improved on Wednesday, the AAII Investor Sentiment Survey showed that 49.1% of individual investors are bullish. 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 Tuesday, I wrote that “Despite new highs, it seems that a correction scenario is likely in the near term. (…) caution may be advised, as a correction or consolidation could occur at some point.”, and the prediction proved correct. The S&P 500 rallied from its previous Wednesday’s daily low of around 4,715 – an advance of 216 points. On Wednesday, it retraced 86 points from Tuesday’s record high of 4,931.09.

Today, the market is slightly bullish, with the S&P 500 futures contract trading 0.1% higher, indicating an advance at the opening of the cash market trading session. The S&P 500 is expected to extend yesterday’s gains this morning following earnings releases from AAPL, AMZN, and META. While Apple stock is down almost 4%, Amazon is gaining 6%, and Meta Platforms rallies by 16%. Although today’s jobs data release, showing much higher than expected Nonfarm Payrolls and Unemployment Rate numbers, led to volatility, overall expectations remain slightly positive.

The market retraced its Wednesday’s rout yesterday, as we can see on the daily chart.

Stocks: Mixed Expectations Post Earnings, Jobs Data - Image 1

Nasdaq Rebounds, but Remains Far from Highs

Last Wednesday, the technology-focused Nasdaq 100 index reached a new all-time high at the level of 17,665.26. However, this week, it failed to extend the uptrend, losing almost 2% on Wednesday after breaking below short-term local lows. Thursday’s rebound retraced a part of that sell-off, and today, the index is likely to open higher by 0.4%; however, it still remains far from the record high.

In early January, the Nasdaq 100 bounced sharply, followed by another advance and closing above the important daily gap down, which was a positive signal. Consequently, it broke to new record highs. While Wednesday’s decline might have signaled the beginning of a new downtrend, for now, it appears to be just a correction or consolidation within an uptrend.

Stocks: Mixed Expectations Post Earnings, Jobs Data - Image 2

VIX Bounced from 14 Again

The VIX index, also known as the fear gauge, is derived from option prices. While it continues to trade sideways, there have been attempts at a breakout above the 15 level. Wednesday's stock market rout pushed the VIX above 14 level, and yesterday, it remained close to that level.

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.

Stocks: Mixed Expectations Post Earnings, Jobs Data - Image 3


Futures Contract Retreats from New High

Let’s take a look at the hourly chart of the S&P 500 futures contract. This morning, it reached new highs, breaking the 4,960 level. However, the jobs data pushed the market lower. The resistance level remains at around 4,960, and the support is at 4,900-4,920.

Stocks: Mixed Expectations Post Earnings, Jobs Data - Image 5


This morning, the S&P 500 index is expected to fluctuate following yesterday's advance. However, sentiment worsened after the release of better-than-expected monthly jobs data. The market may continue to trade within a consolidation after Wednesday’s downturn and yesterday’s rally.

On December 21, I mentioned that “in a short-term the market may see some more uncertainty and volatility”, and indeed, there was a lot of uncertainty following the early-December rally and the breakout of the S&P 500 above the 4,700 level. However, the previous Friday’s price action left no illusions of a potential medium-term trend reversal. On Tuesday, I noted that “The market is overbought in the short term, but predicting a correction is currently very challenging.”, and it proved correct – a correction basically came out of nowhere, triggered by the Fed’s release.

For now, my short-term outlook remains neutral.

Here’s the breakdown:

  • The S&P 500 will continue to fluctuate around the 4,900 level.
  • For now, it seems to be a consolidation following the January rally.
  • 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.

Thank you.

Paul Rejczak,
Stock Trading Strategist