S&P 500: Combined expectations following yesterday’s retreat

Thursday’s buying and selling session introduced extra volatility for the inventory market, with the S&P 500 index reaching a brand new document excessive of 5,505.53 however closing 0.25% decrease. Immediately, the index is more likely to open 0.2% decrease, as indicated by futures contracts. Buyers will likely be ready for the essential U.S. PMI releases at 9:45 a.m.; nonetheless, the principle occasion of the day would be the so-called ‘quadruple witching’ later within the day – derivatives contracts expirations that occur as soon as 1 / 4 and are sometimes accompanied by elevated volatility.

In my forecast for June, I wrote “For the final three months, the S&P 500 index has been fluctuating alongside new document highs, above the 5,000 degree which was damaged in February. It appears to be like like a consolidation inside a long-term uptrend, however it could even be a topping sample earlier than some significant medium-term correction. What’s it more likely to do? Because the saying goes, ‘the pattern is your pal’, so the probably situation is extra advances sooner or later.

Nevertheless, a damaging sign can be a breakdown beneath the 5,000 degree. That will increase the query of a deeper correction and downward reversal. I feel that the probability of a bullish situation is 60/40 – a downward reversal can’t be utterly dominated out. The market will likely be ready for extra indicators from the Fed about potential rate of interest easing, plus, on the finish of the month, the approaching earnings season might dictate the market strikes.”

Investor sentiment remained reasonably unchanged, as indicated by the AAII Investor Sentiment Survey on Wednesday, which confirmed that 44.4% of particular person buyers are bullish, whereas 22.5% of them are bearish (down from final week’s studying of 25.7%). The AAII sentiment is a opposite indicator within the sense that extremely bullish readings might counsel extreme complacency and an absence of concern out there. Conversely, bearish readings are favorable for market upturns.

The S&P 500 index continues to commerce above its upward pattern line, as we will see on the every day chart.

Nasdaq 100 rebounded from 20,000

The technology-focused Nasdaq 100 index reached one more new document excessive of 19,979.93 yesterday, earlier than retracing most of its Monday’s advance and shutting 0.79% decrease. Is that this a high? For now, it appears to be like like a correction; nonetheless, a breakdown beneath 19,500 would seemingly improve promoting stress. This morning, the Nasdaq 100 is more likely to open 0.3% decrease.

VIX – Above 13 once more

The VIX index, also called the concern gauge, is derived from choice costs. In late Could, it set a brand new medium-term low of 11.52 earlier than rebounding as much as round 15 on correction worries. Not too long ago, the VIX got here again in direction of 12, and yesterday, it closed above 13 for the primary time since early June, exhibiting rising concern out there.

Traditionally, a dropping VIX signifies much less concern out there, and rising VIX accompanies inventory market downturns. Nevertheless, the decrease the VIX, the upper the chance of the market’s downward reversal.

Futures contract – Beneath 5,550

Let’s check out the hourly chart of the S&P 500 futures contract. It retraced a few of its latest advances after rebounding from Thursday’s in a single day document excessive of round 5,588. Yesterday, the market reached a neighborhood low of 5,525, and this morning, it’s nonetheless buying and selling alongside that assist degree. The assist degree can be at round 5,500, marked by the latest native highs.

Conclusion

The S&P 500 index is predicted to open barely decrease this morning, and it could see an try at extending yesterday’s decline. Nevertheless, so much will depend on the PMI information after the open and the derivatives expirations later within the day. Total, the probably intraday situation is a unstable consolidation. Has the uptrend reversed yesterday? For now, it appears to be like like a short-term downward correction, however the market might get decrease earlier than rebounding.

For now, my short-term outlook stays impartial.

Right here’s the breakdown:

• The S&P 500 reversed decrease from a brand new document excessive yesterday; for now, it’s a downward correction.

• Not too long ago, inventory costs had been reaching new document highs regardless of blended information and rising uncertainty.

• In my view, the short-term outlook is impartial.

Need free follow-ups to the above article and particulars not obtainable to 99%+ buyers? Sign up to our free newsletter today!