The stock market is likely to continue its short-term decline, but is this just another pullback within a months-long consolidation? The S&P 500 fell 1.11%
The stock market is likely to continue its short-term decline, but is this just another pullback within a months-long consolidation?
The S&P 500 fell 1.11% on Wednesday, pressured by the CPI release and a sell-off in AI-related stocks. Today, the index is expected to open 0.3% lower following the release of the PPI data, which showed a month-over-month increase of 1.3%, above expectations of 0.6%.
Investor sentiment has deteriorated slightly, as reflected in yesterday’s AAII Investor Sentiment Survey, which reported that 38.7% of individual investors are bullish, while 41.6% are bearish.
The S&P 500 index broke below its recent trading range yesterday, as shown on the daily chart.
S&P 500 Futures Contract: Consolidation Following a Pullback
This morning, the S&P 500 futures contract is trading within a consolidation range following yesterday’s sell-off. The market has rebounded from an overnight low of around 7,730.
Resistance is now at 7,780-7,800, while support is at 7,700, among other levels.
Market Outlook: Back Within a Months-Long Consolidation
The S&P 500 is likely to open slightly lower today and fluctuate within a short-term consolidation following yesterday’s decline of more than 1%. Wednesday’s trading session raised an important question: will the market move back toward record highs, or is a new downtrend beginning? So far, the price action suggests that the market is extending the consolidation that began in early August.
Here's what I think is most likely:
- The S&P 500 has broken below its recent trading range. The market is still awaiting quarterly corporate earnings, which may provide a clearer sense of direction.
- My Volatility Breakout System is currently short in the market.
What This Means for Your Portfolio
For individual investors, this environment calls for careful position management. While the market continues to advance, the combination of low volatility, seasonal weakness signals, and stretched valuations suggests that defensive positioning may become increasingly important in the weeks ahead.
The current market conditions highlight the value of having a systematic approach to investing rather than trying to time every market move. Whether you're using technical systems like the Volatility Breakout System or following seasonal patterns, having a disciplined framework becomes crucial during uncertain times.
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Thank you.
Paul Rejczak
Stock Trading Strategist