Stocks: More Uncertainty Despite New Record Highs

The S&P 500 is likely to open higher after a long holiday weekend, but will the uptrend continue?

Today’s Stock Trading Alert will be shorter than usual. We apologize for the inconvenience.

Stock prices were little-changed on Thursday, as markets awaited a long holiday weekend and economic data on Friday. However, the S&P 500 index has reached a new record high of 5,264.85, before closing just 0.11% higher.

This morning, the S&P 500 futures contract is gaining 0.4% after going a bit higher overnight. The question remains: will the recent advances lead to a downward correction and a potential retracement of the uptrend? From a contrarian standpoint, such a correction seems likely, but the overall trend remains bullish.

The investor sentiment much improved last week; Wednesday’s AAII Investor Sentiment Survey showed that 50.0% of individual investors are bullish, while only 22.4% of them are bearish, down from 27.2% last week. 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 index continues to trade above its over month-long upward trend line, as we can see on the daily chart.

Stocks: More Uncertainty Despite New Record Highs - Image 1


S&P 500 – Up 0.39% vs. Last Week

Compared to the previous Friday’s closing price, the index gained just 0.39% last week. Short-term consolidation along the new records may be suggesting that the market may be topping, though no clearly negative signals are evident yet.

Stocks: More Uncertainty Despite New Record Highs - Image 2


Futures Contract Remains Above 5,300

Let’s take a look at the hourly chart of the S&P 500 futures contract. This morning it’s trading along a new record high, however, remaining just slightly above the previous high of around 5,323. The support level is now at 5,300, marked by the recent local lows.

Stocks: More Uncertainty Despite New Record Highs - Image 3


Today, the S&P 500 index is likely to open 0.4% higher, potentially surpassing Friday's record high. More pronounced profit-taking action may be in cards at some point. However, as of now, there have been no confirmed negative signals.

In my Stock Price Forecast for March, I noted “So far, stock prices have been trending upwards in the medium to long term, reaching new record highs. The prudent advice one could give right now is to remain bullish or stay on the sidelines if one believes stocks are becoming overvalued and may need a correction. It's likely that the S&P 500 will continue its bull run this month. However, we may encounter a correction or increased volatility at some point as investors start to take profits off the table.”

Tomorrow, the article will include the Stock Price Forecast for April. Given the S&P 500's 3.1% gain last month, the question arises: will the uptrend continue despite overbought conditions?

For now, my short-term outlook remains neutral.

Here’s the breakdown:

  • The S&P 500 is likely to open slightly higher, extending its uptrend; however, the market is lower than its overnight session opening.
  • In the medium term, stock prices are 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