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Dow Jones, S&P 500 Outlook: traders are selling Wall Street’s reversal

Retail traders are increasingly turning bearish on Wall Street; is this a sign that the Dow Jones and S&P 500 may rise ahead? Both indices appear to be carving out Ascending Triangles.

Source: Bloomberg

The Dow Jones and S&P 500 are on course for the best month this year so far. But, before you get too excited, it has been a dismal year for equities. Despite this, retail traders have remained predominantly bullish, perhaps eager to anticipate the turning point.

IG Client Sentiment (IGCS) is a tool you can you to gauge retail trader positioning. It also tends to function as a contrarian indicator. Now, it seems traders are increasingly turning bearish on Wall Street. Is this a sign of more gains to come from stocks? To learn more, check out the webinar recording above.

Dow Jones sentiment outlook - bullish

The IGCS gauge shows that about 45% of retail traders are long the Dow Jones. Since the majority of investors are now short, this suggests that prices may continue rising. Downside exposure has increased by 11.43% and 15.54% compared to yesterday and last week respectively. Due to these developments in positioning, the data is offering a stronger bullish contrarian trading bias.

Source: DailyFX

Dow Jones daily chart

On the daily chart, the Dow Jones appears to be carving out an Ascending Triangle chart formation. The ceiling seems to be capped around 31888, with rising support from June acting as the floor. A confirmatory breakout above the ceiling could open the door to extending gains towards the 100-day Simple Moving Average (SMA). Beyond that sits the 33169 – 3434 resistance zone. Downtrend resumption entails a push under the 29552 – 29869 support zone which is made up of the February 2021 low.

Source: TradingView

S&P 500 sentiment outlook - bullish

The IGCS gauge shows that roughly 52% of retail traders are net-long the S&P 500. Since most of them are still biased to the upside, albeit only slightly, this hints prices may continue falling. However, downside exposure has increased by 0.63% and 13.15% compared to yesterday and last week respectively. With that in mind, overall positioning seems to hint that the price trend may soon reverse higher even though most investors are long.

Source: TradingView

S&P 500 daily chart

The S&P 500 also seems to be carving out an Ascending Triangle chart formation. The ceiling is around 3950, with rising support from June making the floor. A breakout above the former could open the door to extending gains, placing the focus on the 100-day SMA. Beyond the latter sits the June swing high at 4202. Downtrend resumption entails clearing under the June low at 3639.

Source: TradingView

This information has been prepared by IG, a trading name of IG Australia Pty Ltd. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.

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