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US S&P 500– Retail CFD traders recently hit a record net-short position in the SPX500, which tracks the fair value of the US S&P 500, and a contrarian view of crowd sentiment warns further gains remain likely. Indeed, our data shows there were a remarkable 10.2 retail short positions in SPX500 for every 1 long—a whopping 91 percent of all open positions were short. This eclipsed the previous record set just one month ago as the index traded to fresh yearly lows.
The clear caveat is straightforward—crowds are often their most net-short or net-long at key market turning points, and such heavily one-sided sentiment suggests price momentum may be stretched. Yet by definition these extremes are only clear in hindsight.
Until we see a substantial sentiment swing in the opposite direction, we see little reason to call for a worthwhile reversal in the high-flying US S&P 500.
See next currency section: EURUSD - Euro Remains Weak, but Sentiment Warns this may not Last
--- Written by David Rodriguez, Senior Strategist for DailyFX.com
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