Inflation Data Sparks Uncertainty as S&P 500 Dips Below 5,200
Sunshine Profits | Apr 11, 2024 09:06AM ET
The stock market reacted negatively to the latest Consumer Price Index release yesterday, with the S&P 500 index dropping 0.95% and breaking the 5,200 level again. The CPI has been higher than expected at +0.4% month over month, which caused an advance of the US dollar, leading to stock markets’ sell-off. Futures indicate an 0.2% advance for today's S&P 500 opening, following lower-than-expected Producer Price Index release.
Last Tuesday, in my Stock Price Forecast for April, I noted,
“Closing the month of March with a gain of 3.1%, the question arises: Will the S&P 500 further extend the bull market in April, or is a downward correction on the horizon? From a contrarian standpoint, such a correction seems likely, but the overall trend remains bullish.”
The investor sentiment slightly worsened again, as indicated by yesterday’s AAII Investor Sentiment Survey, which showed that 43.4% of individual investors are bullish, while 24.0% of them are bearish. The AAII sentiment is a contrary indicator in the sense that highly bullish readings may suggest excessive complacency and a lack of fear in the market. Conversely, bearish readings are favorable for market upturns.
Today, the S&P 500 is likely to extend short-term fluctuations, however, remaining below the 5,200 level. Last Thursday, it broke its two-month-long upward trend line, as we can see on the daily chart.
The technology-focused Nasdaq 100 index backed off a bit, but it remained above the 18,000 level yesterday. Last week, the market went closer to local lows from February and March, before rebounding back above 18,000. Today, the Nasdaq index is likely to open 0.4% higher.
The VIX index, also known as the fear gauge, is derived from option prices. In late March, it was trading around the 13 level, and last week, market volatility increased, leading to an advance towards 17. Despite the decline of the index, yesterday it remained within the 15-17 range.
Get The News You Want
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.
Let’s take a look at the hourly chart of the S&P 500 futures contract. This morning, it’s rebounding after the PPI data. The support level remains at 5,160-5,180, and the resistance is currently at 5,220. The market has been in a slight downtrend since the start of the month.
This morning, the S&P 500 is expected to open slightly higher. The Producer Price Index came in lower than anticipated at +0.2% month over month, leading S&P 500 futures to rebound from pre-session lows.
Investors will be waiting for more economic data. It’s also worth noting that the earnings season is approaching in mid-month. Tomorrow before the opening of the trading session, major banks will release their quarterly reports.
Last Tuesday, I wrote that
“In April, we will see a usual series of important economic data, but with the Fed leaning towards easing monetary policy, we should perhaps pay more attention to the quarterly earnings season. However, good earnings may be met with a profit-taking action this time. The market appears to be getting closer to a correction.”
Last Thursday, I added:
“It appears that profit-taking is happening. Is this a new downtrend? Likely not, however, a correction towards 5,000-5,100 is possible at some point.”
For now, my short-term outlook remains neutral.
Here’s the breakdown:
- The S&P 500 is likely to extend a short-term consolidation.
- In the medium term, stock prices remain somewhat overbought, suggesting the potential for a correction.
In my opinion, the short-term outlook is neutral.
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.