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Dow Jones, S&P 500 Analysis: Watch Market Sentiment Carefully as Uptrends Hold

Dow Jones, S&P 500 Analysis: Watch Market Sentiment Carefully as Uptrends Hold

Daniel Dubrovsky, Strategist

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

  • Retail trader bets hint Dow Jones may turn lower, will S&P follow?
  • Uptrends hold in both indices, with S&P 500 eyeing bearish signals
  • Check out my webinar recording of this week’s session to learn more

In this week’s webinar on IG Client Sentiment (IGCS), which is a tool to gauge retail trader positioning, I discussed the outlook of the Dow Jones and S&P 500. IGCS is typically a contrarian indicator. For detailed analysis, check out the recording of the session above, where I discussed how to use IGCS in a trading strategy. I also covered the fundamental outlook for US benchmark stock indexes.

Dow Jones Sentiment Outlook - Bearish

The IGCS gauge implies that about 37% of retail traders are net long the Dow Jones. Upside exposure has increased by 10.87% and 15.50% over a daily and weekly basis respectively. The fact that traders are net short hints prices may continue rising. Having said that, recent changes in sentiment warn that the Dow could turn lower ahead.

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Dow Jones, S&P 500 Analysis: Watch Market Sentiment Carefully as Uptrends Hold

Technical Analysis

From a technical standpoint, Dow Jones futures continue to consolidate just under the 61.8% Fibonacci extension at 34269. A turn lower would place the focus on the 20-day Simple Moving Average and the midpoint of the extension at 33552. Taking these out would then expose rising support from March 2020. This could still maintain the dominant upside focus in the event of a near-term reversal.

Dow Jones Futures Daily Chart

Dow Jones, S&P 500 Analysis: Watch Market Sentiment Carefully as Uptrends Hold

Chart Created in Trading View

S&P 500 Sentiment Outlook - Neutral

The IGCS gauge implies that about 32% of retail investors are net long the S&P 500. Upside exposure has increased by 3.65% compared to yesterday but also decreased by 3.27% versus a week ago. The fact that traders are still net short suggests prices may continue rising. But, the combination of this and recent shifts in sentiment point to a neutral outlook for the index.

Dow Jones, S&P 500 Analysis: Watch Market Sentiment Carefully as Uptrends Hold

Technical Analysis

From a technical point of view, the S&P 500 is facing a neutral ‘Doji’ candlestick pattern. When this appears within an uptrend or downtrend, it could hint at a turning point. But, this is not always the case. Confirmation is key. A further downside close could confirm the Doji, opening the door to a turn lower. That would place the focus on the 20-day SMA and rising support from march 2020. Negative RSI divergence also shows that upside momentum is fading, which can at times precede a turn lower.

S&P 500 Futures Daily Chart

Dow Jones, S&P 500 Analysis: Watch Market Sentiment Carefully as Uptrends Hold

Chart Created in Trading View

*IG Client Sentiment Charts and Positioning Data Used from April 27th 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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