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Dow Jones, S&P 500 Outlook: Retail Trader Signals Hint to Proceed With Caution

Dow Jones, S&P 500 Outlook: Retail Trader Signals Hint to Proceed With Caution

Daniel Dubrovsky, Strategist

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

  • IG Client Sentiment still warning that the Dow and S&P 500 may fall
  • This would place the focus on year-long rising support, will they hold?
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Last week, IG Client Sentiment (IGCS) – a gauge of retail trader positioning – was warning that the Dow Jones and S&P 500 were at risk of turning lower. IGCS is typically a contrarian indicator, meaning that if long bets are rising in an asset, prices could be vulnerable to a pullback and vice versa.

Since then, volatility has been picking up, with choppiness seen in US stock market benchmarks. Meanwhile, the level of net-long bets in the Dow Jones and S&P 500 have remained elevated compared to recent history. Now, it seems like investors ought to continue remaining on guard.

Dow Jones Sentiment Outlook - Bearish

The IGCS gauge implies that about 38.83% of retail traders are net long the Dow Jones. Upside exposure has increased by 8.85% and 25.54% over a daily and weekly basis respectively. Recent changes in sentiment warn that the current price trend may soon reverse lower despite the fact traders remain netshort.

Dow Jones, S&P 500 Outlook: Retail Trader Signals Hint to Proceed With Caution

Technical Analysis

The Dow Jones formed a Bearish Engulfing candlestick pattern towards the end of last month. This is typically a reversal warning that can appear at the top of a given uptrend, but downside confirmation has been somewhat lackluster. Moreover, the broader uptrend has been holding, supported by rising support from March 2020.

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Dow Jones Futures Daily Chart

Dow Jones, S&P 500 Outlook: Retail Trader Signals Hint to Proceed With Caution

Dow Jones Chart Created in Trading View

S&P 500 Sentiment Outlook - Bearish

The IGCS gauge implies that roughly 46% of retail traders are net long the S&P 500. Upside exposure has climbed by 2.04% and 4.41% over a daily and weekly basis respectively. Recent changes in sentiment warn that the current price trend may soon reverse lower despite the fact traders remain netshort.

Dow Jones, S&P 500 Outlook: Retail Trader Signals Hint to Proceed With Caution

Technical Analysis

The S&P 500 is pressuring long-term rising support from March 2020 after negative RSI divergence preceded a cautious turn lower. A drop through this range could open the door to deeper losses given confirmation. Otherwise, resuming the uptrend would entail a push towards the midpoint of the Fibonacci extension at 3975.

S&P 500 Futures Daily Chart

Dow Jones, S&P 500 Outlook: Retail Trader Signals Hint to Proceed With Caution

S&P 500 Chart Created in Trading View

*IG Client Sentiment Charts and Positioning Data Used from March 3rd Report

--- Written by Daniel Dubrovsky, Strategist for DailyFX.com

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

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

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