Are Retail Traders Betting on Reversals?

Dow Jones, S&P 500, FTSE 100, Technical Analysis, Retail Trader Positioning – Talking Points

Key stock market benchmarks trading within bearish chart patterns
IGCS shows mixed outlooks for Dow Jones, S&P 500 & FTSE 100
Learn to use IGCS in your trading strategy via webinar recording

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In this week’s session on IG Client Sentiment (IGCS), I covered the outlook for equities such as the Dow Jones, S&P 500 and FTSE 100. IGCS is typically a contrarian indicator. For a more in-depth analysis of where these assets may go, including coverage of fundamentals, check out the recording of the webinar above.

Dow Jones Sentiment Outlook – Bullish

The IGCS gauge implies that roughly 30% of retail traders are net long the Dow Jones Industrial Average. Upside exposure has decreased by 3.16% and 18.86% over a daily and weekly basis respectively. The combination of current sentiment and recent changes offers a stronger bullish contrarian trading bias.

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Dow Jones Technical Analysis

Dow Jones futures are trading within a bearish Rising Wedge chart pattern as positive RSI divergence shows upside momentum fading. A break under the formation could open the door to extending losses. Otherwise, prices may aim to test the midpoint of the Fibonacci extension at 31500.

Dow Jones Futures Daily Chart

Dow Jones Chart Created in Trading View

S&P 500 Sentiment Outlook – Neutral

The IGCS gauge implies that about 38% of retail traders are net long the S&P 500. Downside exposure has decreased by 2.01% over a daily basis while increased by 5.13% over a weekly period. From here, the combination of current sentiment and recent changes offers a further mixed trading bias.

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S&P 500 Technical Analysis

S&P 500 futures are also trading within a bearish Rising Wedge, with a breakout under the pattern raising the risk of a reversal. For the time being, prices continue to trade higher within the formation, with the index eyeing the 50% Fibonacci extension at 3904.

S&P 500 Futures Daily Chart

S&P 500 Chart Created in Trading View

FTSE 100 Sentiment Outlook – Bearish

The IGCS gauge implies that about 60% of retail investors are net long the FTSE 100. Upside exposure has climbed by 23.06% and 33.19% over a daily and weekly basis respectively. The combination of current sentiment and recent changes offers a stronger bearish contrarian trading bias.

FTSE 100 Technical Analysis

Like the Dow Jones and S&P 500, the FTSE 100 also find itself climbing within a bearish Rising Wedge. Prices recently rejected a combination of the March 2020 high and 78.6% Fibonacci extension. This could lead to a retest of wedge support, where a bounce could precede uptrend resumption.