Will The Bullish Sentiment Hold?

In the wake of a recent market selloff, the financial landscape showed signs of recovery, hinting at potential seller exhaustion, a development that may suggest a pivotal shift in where the market goes next.

Amid the volatility, several key economic indicators and corporate earnings reports loom large on the horizon, so will the bullish sentiment hold?

Key Points

• The market has shown recovery signs from the recent selloff, indicating reduced seller activity.
• Upcoming economic indicators and corporate earnings reports alongside disinflationary trends are set to benefit growth stocks.
• Institutions are re-allocating to target sectors like biotech and more volatile assets to capitalize on underlying strength.

Signs of Bullishness Amid Bearish Trend

In the last few trading sessions, the market has revealed a character change with better breadth and resilience against immediate downturns, suggesting that a washout phase has taken place where most sellers who were likely to sell have already exited their positions, paving the way for a more stable footing for the market.

This week, the market faces a series of pivotal earnings releases and the release of the Personal Consumption Expenditures (PCE) price index numbers on Friday. They are likely to have a material impact on market sentiment in the short term.

Amidst the market swings, the biotech sector has displayed signs of rebounding from the 200-day moving average, setting the stage for a bullish bounce. Technical risk vs reward setups are starting to appear favorable but the trend clearly remains bearish.

Key Economic Indicators to Watch

If we’re right, the upcoming PCE numbers will reveal disinflation, which in turn should have a material impact on Federal Reserve policy. If disinflation does become the consensus view, it’s likely to ease concerns around the potential for aggressive rate hikes and lead to a resurgence in the growth sector and small-cap stocks.

As the market swings high and low, the benchmark to watch is the S&P 500 and specifically whether it can rebound decisively to cross beyond the 5120 mark, a crucial weekly pivot point. The bullish trend will be further supported by more strength the Dow Jones Industrial Average and small-cap indices. So too will they confirm the exhaustion of sellers.

Looking ahead, the ability of the market to maintain its current momentum amid significant economic releases and corporate disclosures is going to be critical. It certainly seems as though the market is showing signs of resilience post-selloff, the coming days are crucial.