S&P 500 Still Pausing -> More Short-Term Uncertainty, Complacency Detected

S&P 500 index closed flat on Thursday (09 May) vs. its Wednesday’s closing price. Stock price did not move much, we saw stock prices extend consolidation.

However, we saw market managed to retrace losses after a lower open, resulting in a relatively positive outcome for the day. Could this be a pause while we are navigating an uptrend,

Last month, hopes for a Fed pivot were dashed as new data reignited inflation fears, and geopolitical tensions added further uncertainty. However, as of today, it appears the market is only correcting a rally that began in November.

As seen from the 08 May 2024’s AAII Investor Sentiment Survey, the investor sentiment has clearly improved, which showed that 40.8% of individual investors are bullish, while only 23.8% of them are bearish, down from 32.5% last week.

The S&P 500 approached a potential resistance level marked by its trading range from March and April, as we can see on the daily chart.

On Tuesday to Thursday, the technology-focused Nasdaq 100 index was trading sideways after accelerating higher on Monday and reach a local high of around 18,150 on Tuesday.

The market is likely to fluctuate or retrace some of its recent advances; for now, it looks like a pause within an uptrend.

The VIX index, also known as the fear gauge, is derived from option prices. In late March, it was trading around the 13 level. However, market volatility has led to an increase in the VIX, and on previous Friday, it reached a high of 21.4 - the highest since late October, signaling fear in the market.

Recently it went lower again, and yesterday, it was as low as 12.69, showing a growing complacency in the market.

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.

Today I am expecting S&P 500 to likely extend a short-term consolidation, we can see from the futures contract trading near the 5,200 level at time of this writing.

In the first half of April, the S&P 500 was continuing a correction from the 28 March record high of 5,264.85 on Middle East tensions, strong U.S. dollar. Recently, it sold off below the important 5,000 level, and last week, it kept retracing the declines as earnings and economic data lifted the sentiment again.

I personally would expect the short-term outlook to be neutral.

Appreciate if you could share your thoughts in the comment section whether you think S&P 500 would continue to experience short-term uncertainty?

Disclaimer: The analysis and result presented does not recommend or suggest any investing in the said stock. This is purely for Analysis.