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S&P 500, Dow Jones Forecast: Retail Investors Intensify Bearish Exposure, Now What?

S&P 500, Dow Jones Forecast: Retail Investors Intensify Bearish Exposure, Now What?

Daniel Dubrovsky, Contributing Senior Strategist

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

  • Retail investors have greatly increased downside exposure in US stock indices
  • But, recent shifts in S&P 500 and Dow Jones sentiment offering mixed outlook
  • Eyes are on the Fed and US Core PCE data this week, webinar recording above
How to Use IG Client Sentiment in Your Trading
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Retail investors are once again back to their natural tendency of shorting US benchmark stock indices, as reported by IG Client Sentiment (IGCS). IGCS is typically a contrarian indicator, meaning that if traders continue selling recent trends in the S&P 500 and Dow Jones, the outlook could turn increasingly bullish. For a detailed analysis about this and how you can use IGCS, check out the recording of my webinar above.

S&P 500 Sentiment Outlook - Mixed

The IGCS gauge implies that 35% of retail traders are net-long the S&P 500. Upside exposure increased by 3.74% while decreasing by 19.80% over a daily and weekly basis respectively. We typically take a contrarian view to crowd sentiment, so the fact that investors are net-short hints that prices may keep rising. However, recent shifts in sentiment offers a mixed S&P 500 trading bias.

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S&P 500�Sentiment Outlook�- Mixed

Technical Analysis

S&P 500 futures are testing the key 4416 – 4383 resistance zone as the index remains committed to a dominant uptrend since last year’s bottom. Negative RSI divergence does warn that upside momentum is fading, which can at times precede a turn lower. Such an outcome may place the focus on the 50- and 100-day Simple Moving Averages (SMAs). These could reinstate an upside focus as key support points. Clearing resistance exposes the 78.6% Fibonacci extension at 4486.

S&P 500 Futures Daily Chart

S&P 500 Futures Daily Chart

Chart Created in Trading View

Dow Jones Sentiment Outlook - Mixed

The IGCS gauge implies that about 28% of retail traders are net-long the Dow Jones. Downside exposure decreased by 10.93% while increasing 3.0% over a daily and weekly basis respectively. We typically take a contrarian view to crowd sentiment. With most traders being net-short, the Dow may continue rising. However, recent shifts in sentiment offer a mixed trading bias.

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Dow Jones�Sentiment Outlook�- Mixed

Technical Analysis

Dow Jones futures have left behind a bearish Hanging Man candlestick pattern on the daily chart. Given downside follow-through, this could precede a turn lower amid negative RSI divergence. This is as prices are once again testing the 35000 – 34760 resistance zone. A drop would likely place the focus on the 50- and 100-day SMAs which may reinstate the dominant upside focus. Resuming the dominant uptrend exposes the 61.8% Fibonacci extension at 35675.

Dow Jones Futures Daily Chart

Dow Jones Futures Daily Chart

Chart Created in Trading View

*IG Client Sentiment Charts and Positioning Data Used from July 28th 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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