Will Stock Prices Advances Retrace All Declines? Or Extend Further?

The S&P 500 index gained 1.26% following a 0.9% advance on Thursday. The market was the highest since April as the index went back above the 5,100 level. Last night (Monday 06 May 2024, S&P 500 index gained another 1.03% following last week strong performance.

On Friday, April 19, 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. Recently, stock prices rebounded as tensions in the Middle East eased, and investors shifted their focus to quarterly earnings releases.

The investor sentiment improved last week, as indicated by the Wednesday’s AAII Investor Sentiment Survey, which showed that 38.5% of individual investors are bullish, while 32.5% 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 retraced some more of its mid-April sell-off on Friday, the retracting continue on Monday (06 May 2024) as we can see on the daily chart.

S&P 500 index gained 0.55% as compared to previous Friday’s closing price, this extending its previous week’s rebound of 2.7%. Indeed, the market topped out, breaking below its upward trend line, and accelerated a short-term downtrend.

It’s worth noticing that last week, the index bounced from a support level of around 5,000 again, as we can see on the weekly chart.

Nasdaq 100 index extended last week gain of 1.99% to close at 1.19% on Monday, 06 May 2024. The market rallied as investors continued to gain hope that there was a greater chance of the Federal Reserve cutting interest rates this year..

It is getting close to the resistance level of 18,000 again.

We have seen continuous session of rally, will stocks continue their uptrend? or is this just another leg up within a consolidation?

If we were to look at the market right now, we will need to consider the fear factor, so I would normally look at VIX, which is current below 14.

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, market volatility has led to an increase in the VIX, and on previous Friday, it reached a high of 21.4 - the highest since late October, signaling fear in the market. Recently it went lower again, and on Monday it was as low as 13.49, showing more complacency in the market.

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.

Hence, I would personally look at the price action regarding on how the market is performing because there might be some sectors performing better than the other.

Appreciate if you could share your thoughts in the comment section whether you think stock price advances would continue to retrace all declines?

Disclaimer: The analysis and result presented does not recommend or suggest any investing in the said stock. This is purely for Analysis.