Stocks: Likely Rebounding from Friday Lows

Stocks retreated on Friday, with the S&P 500 closing 1.13% lower as tensions escalated in the Israel-Iran conflict. The index gave back some recent gains, falling back below the 6,000 level. However, today the S&P 500 is expected to open 0.6% higher after initially dipping and extending its late-Friday pullback.

In my opinion, this remains a short-term consolidation, with no confirmed negative signals evident. Beyond the Middle East conflict, investors will be awaiting the key FOMC interest rate decision scheduled for release on Wednesday.

Investor sentiment has improved, as reflected in last Wednesday’s AAII Investor Sentiment Survey, which reported that 36.7% of individual investors are bullish, while 33.6% are bearish.

The S&P 500 did breach its upward trend line on Friday, raising some technical concerns.

S&P 500: Slightly Lower Last Week

The S&P 500 closed 0.39% lower last week after reaching a new local high of 6,059.40 – the highest level since February. However, it has extended a consolidation that started a month ago when the index reached around 5,960.

The index continues trading above the early May weekly gap-up, which is a bullish technical signal. However, resistance remains around 6,100.

Nasdaq 100: Deeper Pullback

The Nasdaq 100 fell 1.29% on Friday, underperforming the broader market due to weakness in the tech sector. Initially, Nasdaq 100 futures rebounded from their overnight lows, but bears ultimately took advantage later in the day, driving the Nasdaq 100 below support around 21,700. The next support level is at 21,500, while resistance remains around 22,000-22,200.

VIX Jumps Above 20 on Geopolitical Fears

Last Wednesday, the Volatility Index (VIX) fell to a local low of 16.23, indicating reduced investor fear. However, on Friday, it rebounded to a local high of 22.00 amid increased Middle East tensions.

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. Conversely, the higher the VIX, the higher the probability of the market’s upward reversal.

S&P 500 Futures: Attempting to Regain Ground

This morning, the S&P 500 futures contract is rebounding and extending a short-term consolidation. The resistance level is around 6,100-6,120, marked by local highs, while support remains at 6,000.

Currently, this appears to be consolidation and a flat correction within an uptrend.

Conclusion

Friday’s sell-off was driven by rising geopolitical tensions, particularly concerns over potential weekend developments in the Middle East. Futures opened lower but quickly bounced off local lows, and the S&P 500 is expected to open 0.6% higher today – extending its consolidation.

The market will await a series of economic data releases this week, including the FOMC monetary policy update on Wednesday.

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Paul Rejczak
Stock Trading Strategist