Stocks are set to rebound – But will they keep climbing?

The stock market has essentially extended its short-term consolidation on Friday. Was it a bottoming pattern before another leg higher?

The S&P 500 Index closed 0.05% higher on Friday, fluctuating following Thursday's 1.2% decline. Investors reacted negatively to earnings reports from Alphabet Inc. (GOOGL) and Tesla, Inc. (TSLA), rising tensions in the Middle East, and a rally in oil prices.

This week will bring a series of major earnings releases, including Microsoft (MSFT) and Meta Platforms (META) on Wednesday, followed by Apple (AAPL) and Amazon (AMZN) on Thursday. Today, the market is expected to open 0.9% higher as optimism over a possible resolution to the Middle East conflict improves sentiment once again.

Investor sentiment has deteriorated, as reflected in Wednesday’s AAII Investor Sentiment Survey, which reported that 29.6% of individual investors are bullish, while 42.3% are bearish.

The S&P 500 continues to consolidate following its strong gains in April and May, as shown on the daily chart.

S&P 500 futures contract: Trading around 7,500

This morning, the S&P 500 futures contract is trading higher, retracing much of last Thursday's sharp sell-off.

Resistance is now at 7,540-7,560, while support is at 7,480-7,500, among other levels.

Market outlook: Consolidation continues

The S&P 500 Index is likely to open higher and retrace part of its recent decline. For now, this appears to be another phase of the ongoing consolidation.

Investors remain cautious amid uncertainty surrounding developments in the Middle East, upcoming economic data releases, quarterly corporate earnings, and elevated valuations in the technology sector. The market will also be focused on the FOMC policy decision on Wednesday.

For now, the price action appears to be part of a broader consolidation following the strong advances recorded in April and May.

Here's what I think is most likely:

• The S&P 500 is likely to rebound at the open today as investors shift their focus to Wednesday's Fed decision and this week's key earnings releases.
• My Volatility Breakout System is currently short in the market.

What this means for your portfolio

For individual investors, this environment calls for careful position management. While the market continues to advance, the combination of low volatility, seasonal weakness signals, and stretched valuations suggests that defensive positioning may become increasingly important in the weeks ahead.

The current market conditions highlight the value of having a systematic approach to investing rather than trying to time every market move. Whether you're using technical systems like the Volatility Breakout System or following seasonal patterns, having a disciplined framework becomes crucial during uncertain times.