Market update: Dow Jones, S&P 500 unscathed by Fed rate hike, retail traders turn more bearish
Dow Jones, S&P 500 unscathed by Fed rate hike; but, retail traders are becoming more bearish and this is a sign further gains may be in store ahead.
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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
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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
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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
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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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This information has been prepared by IG, a trading name of IG Australia Pty Ltd. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.
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