Stocks Rebounded Again – Which Direction Is Next?

S&P 500 is trading sideways as it remains relatively near a record high – so, is this just a pause within an uptrend?

Stock prices extended their short-term fluctuations on Thursday, with the S&P 500 index gaining 0.74% after a slightly lower than expected Producer Price Index release. On Wednesday, the CPI release led stock lower, and yesterday, the market retraced that decline, reaching near the 5,200 level again.

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 slightly worsened again, as indicated by the Wednesday’s AAII Investor Sentiment Survey, which showed that 43.4% of individual investors are bullish, while 24.0% 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.

Today, the S&P 500 is likely to open 0.3% lower as indicated by the futures contract. So, it will extend a consolidation below the 5,200 level. Last Thursday, it broke its two-month-long upward trend line, as we can see on the daily chart.

Stocks Rebounded Again – Which Direction Is Next? - Image 1

Nasdaq 100 – Relatively Stronger Led by Apple’s Rally

The technology-focused Nasdaq 100 index gained 1.65% yesterday, nearing its recent local highs along the 18,300 level. Today, it is likely to open 0.5% lower, extending a consolidation below the record high from March 21 (18,464.70).

Stocks Rebounded Again – Which Direction Is Next? - Image 2

VIX at 15 Again

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 17. Yesterday, it rebounded from a new local high of around 17.50, closing near the 15 following advancing stock prices.

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 Rebounded Again – Which Direction Is Next? - Image 3


Futures Contract Is Above 5,200

Let’s take a look at the hourly chart of the S&P 500 futures contract. This morning, it’s trading well above the 5,200 level, extending a short-term consolidation. The support level remains at 5,180-5,200, and the resistance is currently at 5,260-5,280. The market has been in a slight downtrend since the start of the month.

Stocks Rebounded Again – Which Direction Is Next? - Image 5


This morning, stocks are likely to back down a little following their yesterday’s advance. Big banks' earnings reports came in better than expected, initially prompting a downward reaction. However, the market rebounded, retracing some of the early retreat. Investors will be waiting for more economic data and key earnings releases in the next weeks.

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.”

Last 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 likely to continue sideways following yesterday’s rebound.
  • 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