Market update: Dow Jones, S&P 500 pullback may accelerate as retail traders become bullish

The Dow Jones and S&P 500 have been aiming cautiously lower in recent days. In response, retail traders have started to increase their upside exposure. This can be seen by looking at IG Client Sentiment (IGCS). IGCS tends to function as a contrarian indicator.

Dow Jones sentiment outlook: Bearish

According to IGCS, only about 27% of retail traders are net-long the Dow Jones. Since the majority of them are biased lower, this still hints that prices may continue climbing down the road.

However, upside exposure has increased by 7.14% and 8.65% compared to yesterday and last week, respectively. With that in mind, recent changes in sentiment warn that the Dow Jones might soon reverse lower.

Wall Street client positioning chart

Dow Jones technical analysis

On the daily chart, the Dow Jones was unable to surpass the February 2022 high of 25,752, and it now appears that the next move could be a downward turn. This possibility is reinforced by the presence of negative RSI divergence, indicating a diminishing upside momentum.

The 20-day Moving Average (MA) serves as immediate support, and if the price falls below it, it will reveal the ascending support from October.

Dow Jones daily chart

S&P 500 sentiment outlook: Bearish

According to IGCS, about 36% of retail traders are net-long the S&P 500. Since most of them are biased to the downside, this still suggests that prices may continue rising down the road. But, upside exposure has increased by 9.42% and 23.19% compared to yesterday and last week, respectively.

With that in mind, recent changes in positioning warn that the S&P 500 may soon reverse lower despite overall exposure.

US 500 client positioning chart

S&P 500 technical analysis

The S&P 500 has fallen for three consecutive days, weakening about 1.5%. That marks the worst three-day period since early March. Prices also broke under and confirmed a push through the 20-day Moving Average. That has exposed immediate support at 4446 which is the 23.6% Fibonacci retracement level and the 50-day MA. Clearing under the latter opens the door to a stronger bearish technical bias.

S&P 500 daily chart

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