Traders sell Wall Street reversal, more gains next?

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

  • Retail Traders Are Becoming More Bearish on Wall Street
  • Is this a sign that the Dow Jones and the S&P 500 could go up?
  • Both indices appear to carve ascending triangles

The Dow Jones and S&P 500 are on course for the best month of this year so far. But, before you get too excited, it’s been a dismal year for stocks. Despite this, retail traders remained mostly optimistic, perhaps eager to anticipate the turning point.

IG Customer Sentiment (IGCS) is a tool that allows you to assess the positioning of retail merchants. It also tends to work as a contrarian indicator. Now it looks like traders are getting more and more bearish on Wall Street. Is this a sign of more gains to come from stocks? For more, check out the webinar recording above.

Dow Jones Sentiment Outlook – Bullish

The IGC gauge shows that around 45% of retail traders are long the Dow Jones. Given that the majority of investors are now short, this suggests that prices may continue to rise. Downside exposure increased by 11.43% and 15.54% respectively from yesterday and last week. Due to these positioning developments, the data offers a stronger contrary bullish trading bias.

Dow Jones Daily Chart

On the daily chart, the Dow Jones appears to be carving out an ascending triangle chart formation. The ceiling appears to be capped around 31888, with rising support from June acting as a floor. A confirmation break above the ceiling could open the door for an extension of gains towards the 100-day simple moving average (SMA). Beyond that lies the 33169 – 3434 resistance zone. Resumption of the downtrend implies a push below the 29552 – 29869 support zone which is made up of the February 2021 low.

Dow Jones, S&P 500 Outlook: Traders Sell Wall Street Turnaround, More Gains Next?

Chart created in the trading view

S&P 500 Sentiment Outlook – Bullish

The IGC gauge shows that around 52% of retail traders are net on the S&P 500. As most of them are still trending higher, albeit slightly, this suggests that prices may continue to decline. However, the downside exposure increased by 0.63% and 13.15% from yesterday and last week respectively. With this in mind, the overall positioning seems to indicate that the price trend may soon reverse to the upside, even if most investors are long.

Dow Jones, S&P 500 Outlook: Traders Sell Wall Street Turnaround, More Gains Next?

S&P 500 daily chart

The S&P 500 also appears to be carving out an ascending triangle chart formation. The ceiling is around 3950, with rising support from June making the floor. A break above the first could open the door for an extension of gains, with emphasis on the 100-day SMA. Beyond the latter is the June high at 4202. Resumption of the downtrend implies a clearing below the June low at 3639.

Dow Jones, S&P 500 Outlook: Traders Sell Wall Street Turnaround, More Gains Next?

Chart created in the trading view

* IG customer opinion charts and positioning data used from July 19e 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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