S&P 500, Dow Jones, Retail Trader Positioning, Technical Analysis – IGCS Wall Street Update

  • Retail traders continue to buy Wall Street despite stock losses
  • From a contrarian standpoint, this could hint at more trouble
  • Will the S&P 500, Dow Jones fall as the US CPI report nears?

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In recent days, sentiment has been souring on Wall Street, pushing the S&P 500 and Dow Jones lower. This is ahead of Thursday’s highly anticipated US inflation report. Another solid outcome could likely bring with it hawkish expectations for the Federal Reserve. That may not bode well for Wall Street going forward. For a full synopsis of this discussion, check out the webinar recording above!

Despite recent losses in stocks, retail traders have continued buying into the price action, going against the trend. This can be seen by looking at IG Client Sentiment (IGCS), which tends to function as a contrarian indicator. With that in mind, does this increased appetite from traders to buy the S&P 500 and Dow Jones spell trouble for Wall Street in the coming sessions?

S&P 500 Sentiment Outlook – Bearish

The IGCS gauge shows that about 65% of retail traders are net-long in the S&P 500. Since most traders are biased to the upside, this suggests that prices may continue falling. This is as upside exposure increased by 5.22% and 13.31% compared to yesterday and last week, respectively. With that in mind, the combination of current and recent changes in positioning offers a stronger bearish contrarian trading bias.

S&P 500 Sentiment Outlook - Bearish

S&P 500 Daily Chart

On the daily chart, the S&P 500 remains idling above highs from September 2020. This makes for an inflection zone of support between 3541 and 3587. A confirmatory breakout under this range may open the door to downtrend resumption. That exposes the 61.8% Fibonacci extension at 3447. Otherwise, keep a close eye on the 20-day Simple Moving Average (SMA) as resistance before 3820 kicks in above.

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S&P 500 Daily Chart

Chart Created in Trading View

Dow Jones Sentiment Outlook – Mixed

The IGCS gauge shows that about 58% of retail traders are net-long in the Dow Jones. Since most investors are net-long, this hints that prices may continue falling. But, upside exposure dell by 11.04% compared to yesterday, simultaneously rising by 8.71% compared to last week. Given the recent changes in exposure, this produces a mixed contrarian trading bias.

Dow Jones Sentiment Outlook - Mixed

Dow Jones Daily Chart

Dow Jones futures sit above the October 3rd low at 28635 following recent losses. The 20-day SMA held as resistance, guiding the pair lower with the dominant downtrend. A confirmatory breakout under 28635 exposes the 61.8% and 78.6% Fibonacci extensions at 27945 and 27247, respectively. Otherwise, clearing the 20-day SMA opens the door to facing key resistance at 30513.

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Dow Jones Daily Chart

Chart Created in Trading View

*IG Client Sentiment Charts and Positioning Data Used from October 11th Report

— Written by Daniel Dubrovsky, Strategist for DailyFX.com

To contact Daniel, use the comments section below or@ddubrovskyFXon Twitter





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