Will stock prices retrace their recent gains after the inflation data?

Stock prices remained little changed on Tuesday, with the S&P 500 index closing just 0.03% higher than Monday. The market continued to move sideways despite Fed Chair Powell’s testimony. Today, the market is expected to open lower following the release of the Consumer Price Index (CPI) report, which came in higher than expected at +0.5% month-over-month. S&P 500 futures are trading 1.0% lower, indicating a sharp drop at the open.

Investor sentiment has recently worsened, as shown by the last Wednesday’s AAII Investor Sentiment Survey, which reported that 33.3% of individual investors are bullish, while 42.9% of them are bearish.

The S&P 500 index continues to trade below the 6,100 level, as we can see on the daily chart.

(Click on image to enlarge)

Nasdaq 100 Keeps Fluctuating

The Nasdaq 100 declined by 0.29% on Tuesday, extending its short-term consolidation below resistance at 21,800–22,000. Support remains at around 21,500, marked by last Friday’s low.

Today, the Nasdaq 100 is expected to open 1.1% lower, suggesting further consolidation.

(Click on image to enlarge)

VIX Remained Near 16

The VIX index, a measure of market volatility, rebounded from 15 last Friday, reaching 16.66. It continues to fluctuate with local highs above 20 on January 27 and February 3, still indicating a lack of fear 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. Conversely, the higher the VIX, the higher the probability of the market’s upward reversal.

(Click on image to enlarge)

S&P 500 Futures Contract: Lower After CPI Data

This morning, the S&P 500 futures contract is pulling back from the 6,100 level following the consumer inflation report.

Resistance remains around 6,100-6,120, while support is now around 6,000-6,020.

(Click on image to enlarge)

Conclusion

Stocks are set to open significantly lower following today’s CPI data. No confirmed negative signals have emerged, but stocks continue to fluctuate following post-election rally.

On Monday, in my Stock Price Forecast for January 2025, I noted “...recent rallies have provided selling opportunities. What will February bring? The earnings season is in full swing, likely adding to volatility. Political developments are increasing uncertainty. The market's ongoing consolidation since November may be forming a medium-term topping pattern ahead of some more meaningful downward correction. However, no confirmed bearish signals have appeared yet.”

For now, my short-term outlook is neutral.

Here’s the breakdown:

• The S&P 500 is likely to pull back after the CPI report.
• The stock market is still seeing increased volatility following the post-election rally.
• In my opinion, the short-term outlook is neutral.

More By This Author: