Stocks extended their short-term downtrend on Friday, with the S&P 500 index closing 1.73% lower after reaching a local low of 5,402.62. The market reacted to lower-than-expected monthly jobs data, among other factors. However, this morning, the index is likely to open 0.6% higher on improving investor sentiment ahead of the important CPI data on Wednesday and the FOMC Rate Decision next week.
My speculative short position in the S&P 500 futures contract from August 20, became more profitable on Friday.
On August 21, I wrote “Recently, the market has continued to climb following the brief Yen crisis at the start of August, surprising many traders. The question is whether the market will continue to new highs or reverse course and retrace the recent rally. I think there is a chance the market will reverse its course and correct some of the advances, retracing a large part of the rally.”
Despite recent declines, investor sentiment remained elevated, as shown by the AAII Investor Sentiment Survey last Wednesday, which reported that 45.3% of individual investors are bullish, while 24.9% of them are bearish, down from 27.0% last week.
The S&P 500 index retraced more of its August rebound on Friday, as we can see on the daily chart.
S&P 500 selling off by over 4% last week
Compared to the previous Friday’s closing price, the S&P 500 lost 4.25% last week, after gaining just 0.2% the previous week. This formed a topping pattern just below its mid-July record high. Last Tuesday, I wrote “In the short term, the market may be nearing a downward correction, but overall, the medium-term outlook remains bullish.” This proved correct, and I still think the recent decline is just a downward correction, likely part of a medium-term consolidation that started after the mid-July record high.
Nasdaq 100 extended its sell-off
The technology-focused Nasdaq 100 lost 2.69% on Friday, accelerating its short-term downtrend after the monthly jobs data release. It fell below the 18,500 level, retracing more than half of its August rebound. Potential support is at 18,200, marked by previous fluctuations. Today, the Nasdaq 100 is likely to open 0.7% higher, rebounding after Friday’s rout.
VIX: Above 22
On Friday, the VIX index, a measure of market fear, reached a local high of 23.76, slightly surpassing its Wednesday’s local high. It still indicates elevated fear 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.
Futures contract: Change of trend or just rebound?
Let’s take a look at the hourly chart of the S&P 500 futures contract. On Friday, it briefly fell below the 5,400 level, extending its declines. This morning, the market is rebounding, though it seems to be losing steam ahead of the cash market open. Resistance is around 5,480–5,500, while support remains at 5,400.
Conclusion
The S&P 500 index sold off on Friday as investor sentiment dipped ahead of the weekend, fueled by the monthly jobs data release. Was it a final low before an upward reversal? For now, it looks like a correction of the uptrend, but with important data releases this week and the Fed's decision next week, the market may be entering a consolidation phase, potentially forming a short-term bottoming pattern here.
Last Wednesday, in my Stock Price Forecast for September 2024, I noted that, “the market experienced significant volatility in August, with a roller-coaster ride that included a sell-off to the August 5 local low and a subsequent advance, leading to a consolidation near the record high. (…) sharp reversal suggests more volatility in September. Last month, I wrote that ‘August is beginning on a very bearish note, but the market may find a local bottom at some point.’ The same could be said today, and September will likely not be entirely bearish for stocks.”
For now, my short-term outlook is neutral.
Here’s the breakdown:
-
The S&P 500 index dipped to around 5,400 on Friday; the market may go sideways from here.
-
Investors are eagerly awaiting CPI data on Wednesday and the FOMC Rate Decision next week.
-
In my opinion, the short-term outlook is neutral.
Want free follow-ups to the above article and details not available to 99%+ investors? Sign up to our free newsletter today!
All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits' employees and associates only. As such, it may prove wrong and be a subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski's, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, Sunshine Profits' employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.
Recommended content
Editors’ Picks
![EUR/USD stays deep in red below1.1050](https://editorial.fxstreet.com/images/Markets/Currencies/Majors/EURUSD/money-for-the-table-with-figures-gm118451521-10951870_XtraSmall.jpg)
EUR/USD stays deep in red below1.1050
EUR/USD trades deep in negative territory below 1.1050 in the American session on Monday. The broad-based US Dollar (USD) strength doesn't allow the pair to stage a rebound as market participants gear up for this week's key macroeconomic events.
![GBP/USD remains under pressure, trades below 1.3100](https://editorial.fxstreet.com/images/Markets/Currencies/Majors/GBPUSD/iStock-900067218_XtraSmall.jpg)
GBP/USD remains under pressure, trades below 1.3100
GBP/USD stays under bearish pressure and trades at its weakest level in over two weeks below 1.3100. The US Dollar benefits from rising US Treasury bond yields and doesn't allow the pair to gain traction despite improving risk mood.
![Gold rebounds toward $2,500 despite broad USD strength](https://editorial.fxstreet.com/images/Markets/Commodities/Metals/Gold/gold-bars-50657756_XtraSmall.jpg)
Gold rebounds toward $2,500 despite broad USD strength
Gold (XAU/USD) rebounds toward $2,500 on Monday after falling below $2,490 earlier in the day. Rising US Treasury bond yields and the renewed US Dollar strength, however, seems to be limiting XAU/USD's upside.
![Crypto Today: Bitcoin hashrate hits all-time high as BTC, Ether and XRP hover near support](https://editorial.fxstreet.com/images/Markets/Currencies/Digital%20Currencies/Bitcoin/Bitcoin_Book_XtraSmall.jpg)
Crypto Today: Bitcoin hashrate hits all-time high as BTC, Ether and XRP hover near support
Bitcoin’s hashrate hit a new all-time high on Sunday. Bitcoin and Ethereum hover around support at $56,486 and $2,383 on Monday, respectively. XRP trades at $0.5325, up slightly on the day.
![Week ahead: ECB poised to cut again, US CPI to get final say on size of Fed cut](https://editorial.fxstreet.com/images/Macroeconomics/CentralBanks/ECB/flag-of-the-european-community-eurotower-24637025_XtraSmall.jpg)
Week ahead: ECB poised to cut again, US CPI to get final say on size of Fed cut
ECB is expected to ease again, but will it be another ‘hawkish cut’? US CPI report will be the last inflation update before September FOMC. UK monthly data flurry begins with employment and GDP numbers.
![Moneta Markets review 2024: All you need to know](https://editorial.fxstreet.com/images/IT/Testing/Review/FXSBadgeCertifiedBackg_XtraSmall.png)
Moneta Markets review 2024: All you need to know
VERIFIED In this review, the FXStreet team provides an independent and thorough analysis based on direct testing and real experiences with Moneta Markets – an excellent broker for novice to intermediate forex traders who want to broaden their knowledge base.