Stocks rebounded – Is the downtrend over?

The stock market remains uncertain, and Monday’s rebound may not signal a trend reversal. Investors are awaiting corporate earnings reports and Wednesday’s Fed announcement.

The S&P 500 index gained 0.70% on Monday, recovering part of last week’s losses but remaining below the 7,700 level. Today, the index is expected to open 0.4% higher, making another attempt to reverse its downtrend.

Investor sentiment has deteriorated, as reflected in last Wednesday’s AAII Investor Sentiment Survey, which reported that 36.9% of individual investors are bullish, while 45.8% are bearish.

The S&P 500 remained below its medium-term upward trendline, as shown on the daily chart.

S&P 500 futures contract: Retracing recent declines

This morning, the S&P 500 futures contract is trading higher, rebounding from its overnight low of around 7,700

Resistance is currently at 7,780-7,800, while a support is at 7,700, among other levels.

Market outlook: Still within a medium-term consolidation

The S&P 500 index is likely to open higher, with investors awaiting a series of earnings releases this week, including results from MSFT and GOOG tomorrow, as well as the key FOMC announcement.

So far, price action suggests that the index is extending the consolidation that began in early August.

Investors are awaiting further quarterly earnings reports from major corporations due next week.

Here's what I think is most likely:

• The S&P 500 index may recover some of last week’s losses, but further short-term uncertainty seems likely.
• 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.