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
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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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![Equities Forecast](https://a.c-dn.net/b/32JkY8/500x707Forecast-Equities.png)
![Equities Forecast](https://a.c-dn.net/b/32JkY8/500x707Forecast-Equities.png)
![S&P 500�Sentiment Outlook�- Mixed](https://a.c-dn.net/b/2q0S1D/SP-500-Dow-Jones-Forecast-Retail-Investors-Intensify-Bearish-Exposure-Now-What_body_Picture_6.png)
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](https://a.c-dn.net/b/1dFq4b/SP-500-Dow-Jones-Forecast-Retail-Investors-Intensify-Bearish-Exposure-Now-What_body_Picture_9.png)
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](https://a.c-dn.net/b/2Gqvj5/SP-500-Dow-Jones-Forecast-Retail-Investors-Intensify-Bearish-Exposure-Now-What_body_Picture_8.png)
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](https://a.c-dn.net/b/2KPk55/SP-500-Dow-Jones-Forecast-Retail-Investors-Intensify-Bearish-Exposure-Now-What_body_Picture_10.png)
*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