S&P 500: Upcoming earnings lift hope

Monday’s trading session was quite bullish, with the S&P 500 index climbing by 0.87% and closing above 5,000 level following its sell-off last week. On Friday, the index hit a new medium-term low of 4,953.56. This marked its lowest level since late February, with a decline of over 311 points or 5.9% from the record high of 5,264.85 on February 28. Yesterday, stock prices rebounded as tensions in the Middle East somewhat eased, and investors shifted their focus to the upcoming quarterly results.

Today, sentiment appears mixed, with the futures contract showing a gain of 0.1%, indicating a slightly higher opening for the index. The S&P 500 is likely to fluctuate along the key 5,000 level as investors await earnings releases from major companies. After today's session closes, we'll receive numbers from TSLA and V, followed by META tomorrow, and GOOG, INTC, MSFT on Thursday.

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 has worsened last week, as indicated by the Wednesday’s AAII Investor Sentiment Survey, which showed that 38.3% of individual investors are bullish, while 34.0% of them are bearish, a big increase from the previous week's 24%. 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.

On Friday, the market broke a significant support level, marked by the daily gap up from February 22 (4,983.21-5,038.83). Yesterday, it closed within that range, suggesting a potential reversal, as we can see on the daily chart.

Nasdaq 100 bounced from 17,000

Recently, the technology-focused Nasdaq 100 index broke the 18,000 level, and on Friday, it briefly dipped below the 17,000 level, reaching a local low of 16,973.94.

Yesterday, it traded within the range set on Friday, bouncing back from the 17,000 level once again. Investors will be eagerly awaiting the mentioned earnings releases from key big tech companies.

VIX backing off

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, recent market volatility has led to an increase in the VIX. On Friday, it reached a high of 21.4, the highest since late October, indicating fear in the market. However, by the end of the day, it retreated below the 19 level, suggesting a possible stock market rebound this week. Yesterday, it dipped 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.

Futures contract breaking downward trend line

Let’s take a look at the hourly chart of the S&P 500 futures contract. It keeps trading clearly above 5,000 level following a rebound from Friday’s low of around 4,964, The resistance level remains at 5,080-5,100, among others.

The market has been in a slight downtrend since the start of the month, and last Monday, it accelerated the move lower.

Conclusion

The S&P 500 index accelerated its downtrend last week, extending a correction from the March 28 record high of 5,264.85 on Middle East tensions, strong U.S. dollar. On Friday, it sold off below the important 5,000 level, and yesterday, it rebounded by 0.9%. Was it an upward reversal? For now, it looks like an upward correction or consolidation following an almost 6% decline from the recently acquired new record high.

However, the market might offer a dip-buying opportunity here, as the earnings season historically tends to boost stock prices. Nevertheless, the main short-term trend still indicates a downward trajectory following the recent price action.

On April 2, 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.”

Then, 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 fluctuate ahead of key earnings releases from major tech companies this week.

• Stock prices are the lowest since February, indicating a correction of the medium-term advance.

• In my opinion, the short-term outlook is neutral.

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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