Will last week’s rally continue despite overbought conditions? Key data awaited tomorrow.

The S&P 500 index rallied again on Friday, reaching a new all-time high of 5,030.06, following record-breaking rallies in the AI/tech sector, with Microsoft and Nvidia leading the way up. It broke above the 5,000 level, and after that it quickly added another 30 points, closing 0.57% higher.

Recently, my short-term outlook was still neutral because the market seemed overbought and ready for a downward correction. When in doubt, it’s better to stay out of a position than to try to catch a top and open a short position too early.

Although a downward correction is widely expected, the overall market sentiment remains bullish, and the index may reach more records. This morning, futures contracts indicate that stocks are likely to open virtually flat, yet still very close to all-time highs.

Investor sentiment remains very elevated; last Wednesday’s AAII Investor Sentiment Survey showed that 49.0% of individual investors are bullish, while only 22.6% 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.

Last Wednesday, I mentioned that “We may have to deal with a correction or consolidation of several weeks of advances. With the season of quarterly earnings announcements coming to an end and a series of important economic data, profit taking may follow.”

The S&P 500 is likely to retrace a part of its recent advances at some point. The market may get back to a month-long upward trend line, which right now, is at around 4,950, as we can see on the daily chart.

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S&P 500: Month-Long Rally

The weekly chart of the S&P 500 reveals an over month-long rally, starting from early January. The market has been accelerating its medium-term uptrend since a relatively flat correction in December. However, there are indications that another correction or consolidation may be in the cards.

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Nasdaq 100 Accelerated Towards 18,000

On Friday, the technology-focused Nasdaq 100 index reached a new all-time high at 17,987.90. Recently, it has been relatively weaker than the broader stock market, but last week, it caught up with the S&P 500. However, Nasdaq’s rally was led by a handful of “FANG” stocks like META, NVDA and MSFT. Last Wednesday, I wrote about the NYSE FANG+ index.

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