Will stock prices return to their record highs from early December?
Stocks continued to advance yesterday, with the S&P 500 index closing 0.88% higher after breaking above the 6,000 level. The market resumed its uptrend following Monday's pause and Donald Trump’s presidential inauguration. Today, the S&P 500 futures contract trades 0.6% higher, indicating another positive opening for the index. This optimism is driven by yesterday’s earnings release from NFLX, among other factors.
Investor sentiment worsened last week, as shown by the Wednesday’s AAII Investor Sentiment Survey, which reported that only 25.4% of individual investors are bullish, while 40.6% of them are bearish.
The S&P 500 index has broken above its previous local highs, as we can see on the daily chart.
Nasdaq 100 Nears its Previous Highs
The Nasdaq 100 closed 0.58% higher yesterday, breaking above the 21,500 level. However, some major stocks, including AAPL and TSLA, remained relatively weak. Today, the technology index is set to open 0.9% higher, with advances led by NFLX and NVDA, among others. Potential resistance is at 21,800-22,000, marked by previous highs.
VIX Declined Toward 15
On December 18, the VIX index, a measure of market volatility, surged to 28.32, its highest level since early August. After dropping below 15 in late December, the VIX rose again, and last Monday, it reached a high of 22.04.
Yesterday, it dipped to a low of 14.93, erasing its early January gains amid improving sentiment in the stock 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. Conversely, the higher the VIX, the higher the probability of the market’s upward reversal.
S&P 500 Futures Contract Breaks Above 6,100
This morning, the S&P 500 futures contract is trading above the 6,100 level following an overnight rally fueled by NFLX's earnings release. Resistance is now near 6,150, while support is around 6,080, among others.
For now, the market continues to extend its consolidation, though it appears increasingly likely to retest its record highs.
Conclusion
Stocks are expected to open higher this morning, driven by a rally in NFLX following its earnings release and NVDA after the announcement of U.S. government investments in AI infrastructure. The S&P 500 is approaching its December 6 record high of 6,099.97 but may face profit-taking at some point.
On January 6, in my Stock Price Forecast for January 2025, I wrote that “the stock market is poised for continued fluctuations following the post-election rally in November. Although the S&P 500 dipped by 2.5% last month, this appears to be just a correction of November’s gains.
Will the market resume its uptrend and reach new record highs? This appears likely at some point, driven by growing optimism ahead of Trump’s upcoming inauguration on January 20. However, rallies may provide selling opportunities, leading to a medium-term consolidation phase.”
For now, my short-term outlook is neutral.
I think that no positions are justified from the risk/reward point of view.
Here’s the breakdown:
- The S&P 500 is likely to extend its short-term uptrend, approaching early December’s record highs.
- The stock market is still seeing increased volatility following the post-election rally.
- In my opinion, the short-term outlook is neutral, and no speculative positions are justified from the risk/reward point of view.
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Paul Rejczak,
Stock Trading Strategist