Are Stocks Overheating?
Stock-Markets / Stock Markets 2024 Sep 17, 2024 - 10:18 PM GMTBy: Paul_Rejczak
Stock prices continued their uptrend on Friday, with the S&P 500 gaining 0.54% and breaking above the 5,600 level. The market is once again nearing its July 16 record high of 5,669.67. But will it continue upward? Today, the index is expected to open 0.1% lower as markets await the FOMC rate decision on Wednesday. In the short term, the market appears more and more overbought, making a correction likely at some point.
Last week, the investor sentiment worsened, as shown by AAII Investor Sentiment Survey on Wednesday, which reported that 39.8% of individual investors are bullish, while 31.0% of them are bearish, up from 24.9% last week.
The S&P 500 index is approaching its August local highs, as we can see on the daily chart.
S&P 500: +4% Last Week
Compared to the previous Friday’s close, the S&P 500 gained 4.02%, retracing nearly all of the prior week’s 4.3% decline.
Last Monday, I wrote “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.” This was accurate, and the market could experience more volatility following the Fed's update on Wednesday.
Nasdaq 100: Still Relatively Weaker
The technology-focused Nasdaq 100 gained 0.47% on Friday, extending its short-term uptrend. However, it remains relatively weaker, trading well below the local high from August 22 and far beneath the July 10 record high of 20,690.97. This morning, the Nasdaq 100 is expected to open 0.4% lower.
VIX: Continued Decline
On the previous Friday, the VIX index, a measure of market fear, reached a local high of 23.76. It was indicating elevated fear among investors. Last Wednesday, the rebound in stocks pushed the VIX lower, and on Friday it closed below 17.
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: Remaining Above 5,600
Let’s take a look at the hourly chart of the S&P 500 futures contract. It continues to trade above the 5,600 level after last week's rebound. The resistance remains between 5,630 and 5,650, marked by the previous consolidation.
The S&P 500 index is likely to open 0.1% lower this morning. The key question is: Is this the beginning of a new uptrend leading to a record high? For now, it seems more like a medium-term consolidation. Investors are waiting for the Fed’s policy update on Wednesday, and in my opinion, profit-taking is likely at some point.
Last Monday I closed my profitable short position, at 5,462. This position, opened on August 20 at 5,626, generated a 164-point gain.
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 bearish.
Here’s the breakdown:
- The S&P 500 has broken above the 5,600 level, approaching its mid-July record high.
- Investors are awaiting the FOMC Rate Decision on Wednesday.
- In my opinion, the short-term outlook is bearish.
The full version of today’s analysis - today’s Stock Trading Alert - is bigger than what you read above, and it includes the additional analysis of the Apple (AAPL) stock and the current S&P 500 futures contract position. I encourage you to subscribe and read the details today. Stocks Trading Alerts are also a part of our Diamond Package that includes Gold Trading Alerts and Oil Trading Alerts.
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Thank you.
Paul Rejczak,
Stock Trading Strategist
Sunshine Profits: Effective Investments through Diligence and Care
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The information above represents analyses and opinions of Paul Rejczak & Sunshine Profits' associates only. As such, it may prove wrong and be subject to change without notice. At the time of writing, we base our opinions and analyses on facts and data sourced from respective essays and their authors. Although formed on top of careful research and reputably accurate sources, Paul Rejczak and his associates cannot guarantee the reported data's accuracy and thoroughness. The opinions published above neither recommend nor offer any securities transaction. Mr. Rejczak is not a Registered Securities Advisor. By reading his 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. Paul Rejczak, Sunshine Profits' employees, affiliates as well as their family members 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.
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