In my forecast for June, I wrote “For the last three months, the S&P 500 index has been fluctuating along new record highs, above the 5,000 level which was broken in February. It looks like a consolidation within a long-term uptrend, but it may also be a topping pattern before some meaningful medium-term correction. What is it likely to do? As the saying goes, ‘the trend is your friend’, so the most likely scenario is more advances in the future.
However, a negative signal would be a breakdown below the 5,000 level. That would raise the question of a deeper correction and downward reversal. I think that the likelihood of a bullish scenario is 60/40 – a downward reversal cannot be completely ruled out. The market will be waiting for more signals from the Fed about potential interest rate easing, plus, at the end of the month, the coming earnings season may dictate the market moves.”
Investor sentiment worsened last week, as indicated by the AAII Investor Sentiment Survey last Wednesday, which showed that 39.0% of individual investors are bullish (a decrease from the previous week’s reading of 47.0%), while 26.7% 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 remained near the 5,300 level yesterday, as we can see on the daily chart.
