Dow Jones, S&P 500 Outlook: Retail Traders Sell Wall Street, Rising Wedge in Focus

view original post

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

  • Retail traders have been selling the Dow Jones amid recent gains
  • Most investors remain long the S&P 500 as it eyes a rising wedge
  • How might positioning influence Wall Street in the coming days?

Recommended by Daniel Dubrovsky

Get Your Free Equities Forecast

Get My Guide

A corner of Wall Street has been enjoying robust gains since early October – the Dow Jones. While the S&P 500 is also trading higher since then, its performance is lacking in comparison. The push higher in US interest rates has been disproportionately impacting the tech sector while allowing blue-chip companies to better weather a potential economic downturn.

Broadly speaking, recent gains on Wall Street have seen retail traders continue to unwind their net-long exposure. This can be seen by looking at IG Client Sentiment (IGCS). IGCS tends to function as a contrarian indicator. If retail investors continue to dump upside bets and gather bearish exposure, this could end up supporting stocks ahead.

Dow Jones Sentiment Outlook – Bullish

The IGCS gauge shows that about 27% of retail traders are net-long the Dow Jones. Downside exposure has increased by 9.28% and 11.01% compared to yesterday and last week, respectively. Since most traders are net-short, this hints prices may continue rising. The combination of current sentiment and recent changes in positioning offers a stronger bullish contrarian trading bias.

Dow Jones Daily Chart

On the daily chart, Dow Jones futures have rallied to the key long-term falling trendline from the beginning of this year. A confirmatory breakout above the 33169 – 33434 resistance zone could open the door to a broader bullish bias. But negative RSI divergence shows that upside momentum is fading. A turn lower places the focus on rising support from September. Falling under it could reimpose a bearish bias.

Recommended by Daniel Dubrovsky

Get Your Free Top Trading Opportunities Forecast

Get My Guide

Chart Created in Trading View

S&P 500 Sentiment Outlook – Mixed

The IGCS gauge shows that about 56% of retail traders are still net-long the S&P 500. Since most of them are biased higher, this suggests prices may continue falling. Upside exposure has decreased by 4.02% compared to yesterday while rising 2.51% versus last week. With that in mind, the combination of overall positioning and recent changes offers a further mixed trading bias.

S&P 500 Daily Chart

On the daily setting, S&P 500 futures appear to be trading with a bearish Rising Wedge chart formation. A breakout under the pattern could open the door to extending the August – September downtrend. Since prices remain within the wedge at the time of publishing, the technical bias itself is neutral. Key resistance is the 100-day Simple Moving Average. Breaking higher opens the door to facing the falling trendline from January.

Recommended by Daniel Dubrovsky

Improve your trading with IG Client Sentiment Data

Get My Guide

Chart Created in Trading View

*IG Client Sentiment Charts and Positioning Data Used from November 8th Report

— Written by Daniel Dubrovsky, Senior Strategist for DailyFX.com

To contact Daniel, follow him on Twitter:@ddubrovskyFX