S&P 500, Dow Jones, Technical Analysis, Retail Trader Positioning – Talking Points

  • Retail investors are increasing their long exposure in the S&P 500 and Dow Jones
  • This leaves the indices at risk ahead of this week’s Fed monetary policy decision
  • S&P 500 left behind a Doji candlestick as the Dow Jones tests key rising support

Heading into the Fed rate decision, IG Client Sentiment (IGCS) is showing that retail investors are increasing their long exposure in US equity benchmarks. These include the S&P 500 and Dow Jones Industrial Average. IGCS is usually a contrarian indicator. This could mean that these indices are at risk of losses ahead. For a detailed analysis about how you can apply IGCS in your own trading strategy, check out the recording of my biweekly webinar from earlier this month.

S&P 500 Sentiment Outlook – Bearish

The IGCS gauge implies that about 43% of retail traders are net-long the S&P 500. Upside exposure is on the rise, increasing by 3.53% and 8.06% from yesterday and last week respectively. The fact that most traders are still net-short hints prices could keep rising. But, recent changes in sentiment do warn that the S&P 500 may reverse lower.

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S&P 500, Dow Jones Analysis: Rising Long Exposure Seems Ominous With Fed Nearing

Technical Analysis

A Doji candlestick pattern has been left behind in the S&P 500. This is a sign of indecision. Given downside confirmation, this could be an early reversal warning. Having said that, keep a close eye on rising support from March 2020. This continues to maintain the dominant upside focus. Further gains would likely place the focus on the midpoint of the Fibonacci extension at 4320.

S&P 500 Futures Daily Chart

S&P 500, Dow Jones Analysis: Rising Long Exposure Seems Ominous With Fed Nearing

Chart Created in Trading View

Dow Jones Sentiment Outlook – Bearish

The IGCS gauge implies that roughly 57% of retail traders are net-long the Dow Jones. Upside exposure climbed by 2.41% and 46.92% over a daily and weekly basis respectively. The fact traders are now net-long suggests prices may continue falling. Recent changes in sentiment are also further compounding this notion, leaving the Dow Jones vulnerable.

S&P 500, Dow Jones Analysis: Rising Long Exposure Seems Ominous With Fed Nearing

Technical Analysis

Dow Jones futures are once again testing key rising support from March 2020. This is after establishing resistance between 34760 and 35000 on the daily chart below. This also followed negative RSI divergence, a sign of fading upside momentum. A confirmatory close under rising support could open the door to revisiting the 100-day SMA. The latter may then reinstate an upside focus.

Dow Jones Futures Daily Chart

S&P 500, Dow Jones Analysis: Rising Long Exposure Seems Ominous With Fed Nearing

Chart Created in Trading View

*IG Client Sentiment Charts and Positioning Data Used from June 15th Report

— Written by Daniel Dubrovsky, Strategist for DailyFX.com

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

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