Markets trying to stabilize after recent sharp declines, but is this the bottom?
The S&P 500 plunged 3.46% on Thursday, erasing a significant portion of Wednesday's historic 9.52% rally. The market remains highly volatile as investors continue to react to developments in the U.S.-China trade war. This morning, futures point to a 0.7% higher open, suggesting continued volatility ahead.
Today's PPI data came in lower than expected at -0.4% month over month, which could ease some inflation concerns. Additionally, the University of Michigan Consumer Sentiment survey will be released at 10:00 a.m. However, recent economic data releases have taken a backseat to tariff news.
Investor sentiment remained bearish, as shown in the Wednesday’s AAII Investor Sentiment Survey, which reported that 28.5% of individual investors are bullish, while 58.9% of them are bearish.
The S&P 500 continues to experience significant volatility, as we can see on the daily chart.
Nasdaq 100 Pulling Back Sharply
The tech-heavy Nasdaq 100 sold off by 4.19% on Thursday, retracing a portion of its Wednesday’s rally. The sector is highly exposed to China both for manufacturing and as a key market, hence recent volatility.
While futures suggest a 0.9% higher open, uncertainty remains high. Resistance is now around 19,000, and support is at 17,500-18,000.
VIX – Volatility Remains Elevated
The VIX index continues to fluctuate after its recent advance. On Monday, it reached a new medium-term high of 60.13, the highest level since the carry-trade crisis last year. Yesterday, it pulled back intraday but remains elevated, indicating ongoing fear and uncertainty among investors.
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: Signs of Stabilization?
This morning, the S&P 500 futures contract is trading 0.8% higher, suggesting some stabilization after Thursday's decline. Key support remains around 5,200-5,250, marked by the recent local highs and lows. Resistance is at 5,500.
In Wednesday's analysis, I noted that “The contract may be forming a double-bottom pattern, though it's too early to confirm.” This proved correct.
Conclusion
The stock market remains highly volatile following Wednesday’s historic rally. Uncertainty remains about whether this marked the beginning of a new uptrend or merely a sharp correction within a broader downtrend.
Here’s the breakdown:
- S&P 500 futures point to a 0.8% higher open, suggesting potential stabilization.
- PPI data came in lower than expected at -0.4% month-over-month.
- It is still a news-driven market, with tariff developments in focus.
- In my opinion, the short-term outlook is neutral.
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Paul Rejczak
Stock Trading Strategist