Retracement in indices aids retail traders majority short in Dow, Nasdaq, and DAX

Dow Technical analysis, overview, strategies, and levels

With US indices near recent record highs, it's been capturing the headlines and infusing the market with increased appetite even if it hasn't been accompanied by real gains on the economic front both at home as well as globally. The Dow yesterday was in for a retreat however, with all its sectors in the red and communications and consumer discretionary registering the largest losses. Of its components, nearly all were in the red led by IBM and Disney, while Apple managed to avoid losses to register a small gain. From a technical standpoint, while the daily bull trend line is broken somewhat, far more will be needed to undo the weekly bull trend line.

IG client and CoT sentiment for Dow

The drop is in line with retail traders holding a heavy short bias, and they’ve dropped that bias by 2% to 70%. That stands in exact contrast with CoT (Commitment of Traders) bias as per the latest report out of the CFTC, whereby larger speculative traders have increased their heavy long bias in the index with a rise in consolidated long positions by 528 lots and a simultaneous reduction in short by 1,390 lots.

Dow chart with retail and institutional sentiment

Nasdaq Technical analysis, overview, strategies, and levels

Although the Nasdaq suffered slight retracement yesterday, it has occurred from recent record highs and following on consecutive weeks of fresh records. As a result, any insignificant retracement has done little to dent the mood for the tech index ahead of the New Year, whereby trading is usually light ahead of the holiday. In terms of its components, Tesla was at the bottom and following its recent record highs though still keeping its price well above the $400 mark, with the price drop likely hurt by an analyst report on possible deliveries miss for its 2019 target.

IG client and CoT sentiment for Nasdaq

In terms of sentiment, retail bias has dropped only slightly as the bulk of those shorts have been initiated at lower price levels and will be in need of further retracement to unwind those shorts in profit. As for CoT sentiment, while it seemed last week to be on the verge of shifting to majority short bias, a larger reduction in consolidated shorts by 1,561 lots outdoing a smaller reduction in long positions by 444 lots has pushed the slight majority long bias 3% higher to 56%.

Nasdaq chart with retail and institutional sentiment

DAX Technical analysis, overview, strategies, and levels

It’s a technical overview shift for the DAX, though doesn’t come as much of a surprise given weeks of relative oscillations that although on the weekly level hasn’t dented its current bull trend technical overview, has certainly pushed most of its main technical indicators towards neutral. However, with a German bank holiday today, expect the German DAX to offer little in terms of movement without further indication from global indices. Few of its components were in the green yesterday, though risk appetite overall was in slight retreat yesterday.

IG client and CoT sentiment for DAX

However, retail traders aren’t complaining about the retracement, as the price drop aided range-trading (and averaged-in) short positions into taking profit as the price plummeted, and the bias has dropped 9% from a previous heavy short 67% to a now more moderate 58%.

DAX chart with retail and institutional sentiment