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Dow Jones and S&P 500 Outlook: Will Wall Street Drop Fuel Long Bets?

Dow Jones and S&P 500 Outlook: Will Wall Street Drop Fuel Long Bets?

2020-05-13 03:00:00
Daniel Dubrovsky, Analyst

Dow Jones, S&P 500, Trader Positioning - Talking Points

  • Dow Jones, S&P 500 and Nasdaq Composite recently fell
  • How can that impact retail investor positioning bets next?
  • Sentiment readings appear bullish but that may change

What Does Trader Positioning Say About the Dow Jones and S&P 500

The Dow Jones and S&P 500 – frequent go-to's for gauging global market mood – are seemingly losing upside momentum as the slope of appreciation on Wall Street fades. Yet retail investors are still appearing to favor selling into recent price action. Recently, the tech-heavy Nasdaq Composite clocked in its worst decline over 4 hours since March 25. If this translates into a rising share of traders losing interest in selling key US equities, sentiment could start deteriorating. See the webinar recording above for my detailed discussion this week.

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Dow Jones Sentiment Outlook

The IG Client Sentiment (IGCS) gauge imples that about 34.57% of retail traders are net long the Dow Jones at the time of writing. This is as net short bets are up 6.35% and 6.69% from the day before and last week respectively. We typically take a contrarian view to crowd sentiment, and the fact traders are netshort suggests prices may rise. From a psychological standpoint, this could speak to traders attempting to pick the top.

Dow Jones and S&P 500 Outlook: Will Wall Street Drop Fuel Long Bets?

Dow Jones Technical Analysis

Dow Jones futures are attempting to push through key support. This is a combination of the rising trend line from late April and the horizontal range between 23208 – 23428. A descent through these points, with confirmation, could set the stage for a broader reversal of the prior uptrend. In order to resume gains materially, the Dow Jones faces key resistance between 24471 to 24792.

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Dow Jones Futures 4-Hour Chart

Dow Jones and S&P 500 Outlook: Will Wall Street Drop Fuel Long Bets?

Dow Jones Futures Chart Created in Trading View

S&P 500 Sentiment Outlook

The IGCS gauge implies that about 23% of retail traders are net long the S&P 500 at the time of publishing. This is down from about a 63% upside bias in late March. Since then, prices have climbed over 30%. Recently, net short bets have increased by 3.84% and 3.81% over a daily and weekly period respectively. The combination of current sentiment and recent changes offers a stronger S&P 500-bullish contrarian trading bias.

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Dow Jones and S&P 500 Outlook: Will Wall Street Drop Fuel Long Bets?

S&P 500 Technical Analysis

S&P 500 futures are also facing key support ahead. These are a combination of the rising trend line from late April and lows from May 6. Clearing these points would then expose horizontal support which seems to be a range between 2735 to 2771. Beyond that sits the April 21 low at 2717 which if gives way, may catalyze a broader reversal in the S&P 500. Uptrend resumption entails clearing resistance at 2965.

S&P 500 Futures 4-Hour Chart

Dow Jones and S&P 500 Outlook: Will Wall Street Drop Fuel Long Bets?

S&P 500 Futures Chart Created in Trading View

*IG Client Sentiment Charts and Positioning Data Used from May 12 Report

--- Written by Daniel Dubrovsky, Currency Analyst for DailyFX.com

To contact Daniel, use the comments section below or @ddubrovskyFX on Twitter

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