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CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money. CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money.

Dow Jones, S&P 500 surge as retail traders sell the rips

Wall Street witnessed the best two-day gain since April 2020, retail traders have been selling the Dow Jones, S&P 500 and bullish engulfing hints there might be more room to rise.

Source: Bloomberg

Over the past two days, Dow Jones futures have rallied 5.43%, the most aggressive push since April 2020. Meanwhile, S&P 500 futures gained 5.6% over the same period. This followed a larger-than-expected dip in US job openings, causing traders to pare back hawkish Federal Reserve monetary policy expectations.

Retail traders have been responding, though not in the way you might think. According to IG Client Sentiment (IGCS), traders have been increasing their short exposure on Wall Street. IGCS tends to function as a contrarian indicator. With that in mind, could there be more gains in store for stocks ahead?

Dow Jones sentiment outlook - bullish

The IGCS gauge shows that about 53% of retail traders are net-long the Dow Jones. Since most traders are still on the bullish side of things, this hints prices may continue falling. However, short exposure climbed by 18.67% and 63.94% compared to yesterday and last week, respectively. These recent changes in positioning are hinting prices may reverse higher.

Source: DailyFX

Dow Jones daily chart

Dow Jones futures confirmed a Bullish Engulfing candlestick pattern. This has opened the door to a continuation of recent gains. That said, despite the impressive rally, the Dow Jones has not tested the near-term 20-day Simple Moving Average. This could reinstate the downside focus. If not, that will expose the 50-day line. Broadly speaking, the falling zone of resistance from the end of last year is maintaining the downside bias. This means there is plenty of room for recovery without necessarily overturning the bearish bias.

Source: TradingView

S&P 500 sentiment outlook - bullish

The IGCS gauge shows that about 57% of retail traders are net-long in the S&P 500. Since most traders are still long, this hints prices may continue falling. But, downside exposure increased by 11.88% and 17.09% compared to yesterday and last week, respectively. These recent changes in positioning hint that prices may reverse higher ahead.

Source: DailyFX

S&P 500 daily chart

Like the Dow Jones, the S&P 500 has confirmed a Bullish Engulfing candlestick pattern. This may open the door to further gains. Prices remain below the 20-day SMA. Confirming a breakout above it could extend the push higher. Still, the falling trendline from the beginning of this year is maintaining the broader downside bias. As such, there is a good amount of room for recovery without necessarily overturning the bearish bias.

Source: TradingView

This information has been prepared by IG, a trading name of IG Markets Limited and IG Markets South Africa Limited. 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. See full non-independent research disclaimer and quarterly summary.

This information has been prepared by IG, a trading name of IG Markets Ltd and IG Markets South Africa Limited. 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. See full non-independent research disclaimer and quarterly summary.

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