To The Moon

Monday (13 May) session ended rather flat, with only NASDAQ making a small gain. S&P 500 was just slightly above 5,200. It reached a new local high of 5,239.66 on last Friday and it was the highest since April 4.

The question arises: will the S&P 500 continue its bull market and reach a new record? We will continue to see S&P 500 experience some short-term uncertainty as it approaches a series of the previous local highs and resistance levels.

Monday session was pretty flat and S&P 500 was slightly down with the market waiting for the important inflation data tomorrow and on Wednesday. Tomorrow, we will get the Producer Price Index, and on Wednesday, the key Consumer Price Index will be released.

Investor Sentiment Clearly Improved

Last Wednesday’s AAII Investor Sentiment Survey, which showed that 40.8% of individual investors are bullish, while only 23.8% of them are bearish, down from 32.5% last week. This indicate that investor sentiment has clearly improved.

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 approached a potential resistance level marked by its trading range from March and April, as we can see on the daily chart.

S&P 500 – Weekly 1.85% Gain, Monday Saw Small Dip

Compared to the previous Friday’s closing price, the index gained 1.85%, retracing more of its previous declines. The recent price action confirmed the importance of the 5,000 level as a medium-term support. It’s hard to say whether the market will continue its long-term uptrend; however, it will most likely remain above 5,000 in the coming weeks or months.

Monday saw S&P 500 dip slightly but still maintain above the 5,200 level.

Nasdaq 100 – Closer to Previous Highs

Last week, the technology-focused Nasdaq 100 index has been mostly fluctuating along the 18,000 level. However, on Friday, it broke higher and retraced more of its previous declines. Potential resistance level remains at 18,400-18,500, marked by the March 21 record high of 18,464.70. Today, the tech stocks gauge is likely to open higher by 0.3%.

Monday session saw NASDAQ 100 maintaining above 18,000 and NASDAQ was the only green index.

VIX Moved Above 13

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 April 19, it reached a local high of 21.4 - the highest since late October, signaling fear in the market.

Recently it was going lower again, and on Friday, it was as low as 12.50, showing complacency in the market. On Monday (13 May), we saw VIX going above 13 after 2 sessions of below 13, does this mean that we might be expecting stock market downturns.

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.

Futures Contract Remains Close to 5,250

If we looked at the chart of S&P 500 futures contract. We saw that it retraced some of the recent advances on Friday, but it managed to come back closer to local highs, and on Monday, it started trading along the 5,250 level again.

The resistance level is at 5,300, and the support level is at 5,200-5,220, marked by the recent trading range.

Summary

The S&P 500 is likely to remain close to its last week’s local highs after extending a rebound from late April low and retracing almost all of its 5.9% downward correction. However, the market neared the resistance area marked by local highs from March and April, and it may face a more pronounced profit-taking action at some point.

The uncertainty seems to be gone, but the overall very bullish sentiment coupled with low VIX readings last week seem to start disappearing. Some profit-taking may be on the horizon; however, the inflation data this week will likely cause more volatility.

I would think that May would likely be giving sideways trading, with investors digesting recent data suggesting that inflation may not be transitory, and the Fed could maintain its relatively tight monetary policy. However, economic data is not entirely negative, and strong earnings from companies may continue to fuel the bull market.

I would think it would be better to focus our investment on these ETFs like $Invesco QQQ(QQQ)$ $SPDR S&P 500 ETF Trust(SPY)$

Appreciate if you could share your thoughts in the comment section whether you think PPI and CPI could create volatility for the market this week?

@TigerStars @Daily_Discussion @Tiger_Earnings @TigerWire appreciate if you could feature this article so that fellow tiger would benefit from my investing and trading thoughts.

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