S&P 500’s Sharp Declines Warn of Further Downside
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SPX500 –Retail CFD speculators have bought aggressively into SPX500 weakness, and a contrarian view of crowd sentiment suggests stocks could indeed continue lower.
Trade Implications SPX500 – The SPX500 tracks the fair value of the S&P 500 futures price, and a look at the chart above shows that traders had remained consistently net-short the contract since it traded near 1400.
Total long interest nearly tripled as the SPX500 traded from 1840 to 1750 in under a month. Sentiment and price extremes (tops/bottoms) are only clear in hindsight, but the substantial shift in sentiment suggests that stocks could have set a lasting short-term top.
--- Written by David Rodriguez, Quantitative Strategist for DailyFX.com
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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.