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Dow Jones, S&P 500, DAX 30 Forecasts: Technical Analysis, Retail Bets Flash Warnings

Dow Jones, S&P 500, DAX 30, Technical Analysis, Retail Trader Positioning – Talking Points

  • Retail investors are seemingly increasing upside bets in US and European stocks
  • Contrarian signals warn Dow Jones, S&P 500 and DAX 30 could be vulnerable
  • Technical analysis seems to be showing that there is room for some weakness

According to IG Client Sentiment (IGCS), retail investors appear to be increasing upside exposure in indices such as the Dow Jones, S&P 500 and DAX 30. IGCS is usually a contrarian indicator, especially in trending markets. If traders continue buying into recent price action seen in North American and European stock markets, then there may be room for further downside potential in prices.

Dow Jones Sentiment Outlook – Bearish

The IGCS gauge implies that about 37% of retail traders are net-long the Dow Jones. Upside exposure has increased by 2.10% and 87.86% over a daily and weekly basis respectively. The fact that investors are still net-short suggests that prices may continue rising. However, recent shifts in positioning warn that there may be room for near-term losses in the Dow Jones.

Dow Jones, S&P 500, DAX 30 Forecasts: Technical Analysis, Retail Bets Flash Warnings

Technical Analysis

Dow Jones futures may be vulnerable to a deeper turn lower in the near term. Prices have confirmed the formation of a bearish Hanging Man candlestick pattern. A drop through the 35000 – 34760 inflection zone exposes the 100-day Simple Moving Average (SMA). The latter could reinstate the dominant focus to the upside. Otherwise, taking it out may open the door to facing lows from June.

Dow Jones Futures Daily Chart

Dow Jones, S&P 500, DAX 30 Forecasts: Technical Analysis, Retail Bets Flash Warnings

Chart Created in Trading View

S&P 500 Sentiment Outlook – Bearish

The IGCS gauge implies that roughly 34% of retail traders are net-long the S&P 500. Upside exposure has increased by 6.36% and 10.01% over a daily and weekly basis respectively. The fact that traders are still net-short hints that prices may continue rising. However, recent changes in sentiment are warning that the S&P 500 could continue lower from here.

Dow Jones, S&P 500, DAX 30 Forecasts: Technical Analysis, Retail Bets Flash Warnings

Technical Analysis

S&P 500 futures may be at risk of extending recent losses. Prices have also left behind a bearish Hanging Man candlestick formation, subsequently finding follow through. A drop through the 4416 – 4383 inflection zone would expose the 100-day SMA, which may reinstate the dominant focus to the upside later on. Negative RSI divergence was showing that upside momentum was fading prior to the recent turn lower.

S&P 500 Futures Daily Chart

Dow Jones, S&P 500, DAX 30 Forecasts: Technical Analysis, Retail Bets Flash Warnings

Chart Created in Trading View

DAX 30 Sentiment Outlook – Bearish

The IGCS gauge implies that about 24% of retail investors are net-long the DAX 30. Upside exposure has increased by 26.97% and 40.85% over a daily and weekly basis respectively. The fact that traders are still net-short suggests that prices may continue rising. However, recent shifts in positioning are warning that the DAX 30 could extend recent losses.

Dow Jones, S&P 500, DAX 30 Forecasts: Technical Analysis, Retail Bets Flash Warnings

Technical Analysis

The DAX 30 could be vulnerable after prices left behind a bearish Shooting Star candlestick formation. However, subsequent follow-through has been noticeably missing. That is arguably undermining the presence of the Shooting Star. Still, a turn lower from here could bring the downside implications of the candlestick pattern back into focus as well as the 100-day SMA.

DAX 30 Daily Chart

Dow Jones, S&P 500, DAX 30 Forecasts: Technical Analysis, Retail Bets Flash Warnings

Chart Created in Trading View

*IG Client Sentiment Charts and Positioning Data Used from August 18th Report

— Written by Daniel Dubrovsky, Strategist for DailyFX.com

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