S&P 500: New Highs or Consolidation Ahead?

 | Mar 14, 2024 09:11AM ET

Wednesday’s trading session didn’t bring much change for the stock market. On Tuesday, the S&P 500 gained 1.1%, and yesterday, it lost 0.19%, extending a consolidation below its last Friday’s record high of 5,189.26. So, the question is: will stocks break higher and reach new all-time highs? This morning, the S&P 500 futures contract is trading 0.2% higher following a higher-than-expected Producer Price Index release (it came in at +0.6% vs. expected +0.3% m/m), accompanied by worse-than-expected Retail Sales data. It’s indicating a slightly higher opening for the S&P 500 index today.

On March 1, I mentioned about February,

“Despite concerns about stock valuations, the market rallied to new record highs, fueled by hopes of the Fed's monetary policy pivot and the AI revolution.”.

And yet, it was the same story again last week. However, on Friday, a much more pronounced profit-taking occurred. Nevertheless, on Tuesday and yesterday, the S&P 500 went closer to its record high again.

While indexes were hitting new record highs, most stocks were essentially moving sideways. So, the question is – is this a topping pattern before a more meaningful correction? Still, there have been no confirmed negative signals; however, one might consider the possibility of a trend reversal.

Recently, the stock market continued to rally, fueled by advances in a handful of tech sector stocks, but as I wrote on February 7, “We may have to deal with a correction or consolidation of several weeks of advances. With the season of quarterly earnings announcements coming to an end and a series of important economic data, profit taking may follow.” Despite last week’s new record, this still holds true. Nevertheless, such volatility complicates short-term market predictions.

The investor sentiment remained elevated yesterday; the AAII Investor Sentiment Survey showed that 45.9% of individual investors are bullish, while only 21.9% 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.

The S&P 500 index is still trading above an over month-long upward trend line, as we can see on the daily chart.