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Retail Traders Hold Most Extreme S&P 500 Net Short Position in 2 Years

Retail Traders Hold Most Extreme S&P 500 Net Short Position in 2 Years

Daniel Dubrovsky, Contributing Senior Strategist


Talking Points

  • S&P 500 net short exposure rose to a 2-year high of 92 percent
  • With the index hitting record highs this past week, traders seem intent on calling a reversal
  • Want to learn more about the DailyFX SSI indicator? Click here to watch a tutorial.

Having trouble trading indexes such as the S&P 500? This may be why.

In early February 2016, the S&P 500 index hit a 2-year low of 1,807.50 – as can be seen on the chart below. At the time, the Speculative Sentiment Index (SSI) showed that 56 percent of retail CFD traders were net long – barely a majority but the most bullish for the group in a long time. Since then, the S&P 500 rallied more than 20 percent and the slight bullish majority quickly transitioned into an intense bearish crowd.

As of Friday’s close, the S&P 500 stood at a record high. Meanwhile, showing an exceptional skepticism, the percentage of traders looking to ride further advance (long the index) shrank to a paltry 8 percent, the smallest percentage in 2 year low. The SSI is a contrarian indicator at extreme levels. In this case, since roughly 92 percent of traders are short the S&P 500, the standard interpretation of investors’ appetites to pick tops and bottoms would suggest further gains may be in order. However, with a laundry list of high-profile event risk including the FOMC rate decision; US, Eurozone and UK GDP figures; and ECB’s bank stress test results due, caution and close monitoring of the newswires will be crucial.

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.