Stocks sell off – Is this the start of a major correction?

The stock market is likely to continue its short-term decline, but is this just another pullback within a months-long consolidation?

The S&P 500 fell 1.11% on Wednesday, pressured by the CPI release and a sell-off in AI-related stocks. Today, the index is expected to open 0.3% lower following the release of the PPI data, which showed a month-over-month increase of 1.3%, above expectations of 0.6%.

Investor sentiment has deteriorated slightly, as reflected in yesterday’s AAII Investor Sentiment Survey, which reported that 38.7% of individual investors are bullish, while 41.6% are bearish.

The S&P 500 index broke below its recent trading range yesterday, as shown on the daily chart.

S&P 500 futures contract: Consolidation following a pullback

This morning, the S&P 500 futures contract is trading within a consolidation range following yesterday’s sell-off. The market has rebounded from an overnight low of around 7,730.

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

Market outlook: Back within a months-long consolidation

The S&P 500 is likely to open slightly lower today and fluctuate within a short-term consolidation following yesterday’s decline of more than 1%. Wednesday’s trading session raised an important question: will the market move back toward record highs, or is a new downtrend beginning? So far, the price action suggests that the market is extending the consolidation that began in early August.

Here's what I think is most likely:

• The S&P 500 has broken below its recent trading range. The market is still awaiting quarterly corporate earnings, which may provide a clearer sense of direction.
• My Volatility Breakout System is currently short in the market.