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.
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 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.
Dow Jones Futures 4-Hour Chart
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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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
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
