Market update: Dow Jones, S&P 500 unscathed by Fed rate hike, retail traders turn more bearish

Equities were left relatively unscathed following this month’s Federal Reserve interest rate hike. A pause is mostly priced in for September. Beyond that policymakers have stressed a data-dependent approach. In response, retail traders have increased downside exposure in the Dow Jones and S&P 500.

This can be seen by looking at IG Client Sentiment (IGCS). IGCS tends to behave as a contrarian indicator.

Dow Jones sentiment outlook - bullish

According to IGCS, about 19% of retail traders are net-long the Dow Jones. Since most of them are biased lower, this hints prices may keep rising. This is as downside exposure increased by 4.02% and 22.81% compared to yesterday and last week, respectively. With that in mind, the combination of overall exposure and recent changes in it produces a stronger bullish contrarian trading bias.

IG client sentiment chart

Dow Jones technical analysis

The Dow Jones sits just under the February 2022 high at 35752, which is immediate resistance. Clearing this point exposes all-time highs, making for a zone of resistance between 36446 and 36832. In the event of a turn lower, that places the focus on the 20-day Moving Average (MA). This may hold as support, maintaining an upside bias.

Dow Jones daily chart

S&P 500 sentiment outlook - bullish

According to IGCS, about 29% of retail traders are net-long the S&P 500. Since most of them are still biased lower, this hints that prices may continue rising. This is as downside exposure increased by 0.55% and 2.55% compared to yesterday and last week, respectively. With that in mind, the combination of current positioning and recent changes offers a stronger bullish contrarian trading bias.

US 500 IG client sentiment

S&P 500 technical analysis

The S&P 500 has climbed to the critical 4586 – 4631 resistance zone, which is made up of peaks in March 2022. However, negative RSI divergence is present. This shows that upside momentum is fading, which can at times precede a turn lower. That would place the focus on the 20-day MA. Otherwise, clearing higher exposes the midpoint of the Fibonacci extension level at 4695.

S&P 500 daily chart

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