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US S&P 500– Retail CFD traders have significantly scaled back short positions on the SPX500, which tracks the US S&P 500. A contrarian view of ‘crowd’ sentiment warns stocks may be at a major turning point.
It was only last week when many of the same traders were at their most net-short SPX500 on record—a massive 91 percent of all open positions were short. The number of long positions has more than doubled in the past seven days while shorts have fallen 32 percent. The end result is that the ratio of open short to long positions has fallen from 10:1 to 3.3:1 in the same stretch.
It is important to note that it is early yet to call for the long-awaited turn lower—we would ideally see traders turn net-long the SPX500 before calling for larger declines. Yet it is clear that S&P 500 traders should proceed with caution given the risk of a substantial sentiment turnaround.
See next currency section: EURUSD - Euro Sticks to Key Range for Now – Here’s What We’re Watching
--- Written by David Rodriguez, Senior Strategist for DailyFX.com
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