S&P 500, Dow Jones forecast: Wall Street indices may rise as retail traders sell

Taking a look at IG Client Sentiment (IGCS), retail investors are back to tending to sell the major benchmark stock indices on Wall Street. These include the US 500 and Dow Jones. IGCS tends to be a contrarian indicator. This means that if retail traders continue to sell into recent price action, there could be more room for these indices to extend gains.

S&P 500 sentiment outlook - Bullish

The IGCS gauge shows that roughly 45% of retail traders are net-long the S&P 500. Downside exposure decreased by 0.89% compared to yesterday while simultaneously increasing 14.74% compared to a week ago. Since the majority of traders are now net-short, this hints that prices may continue rising. Recent shifts in positioning are further underscoring a bullish contrarian trading bias.

Techincal analysis

S&P 500 futures extended an advance beyond a near-term falling trendline from early September. This has brought the index very close to the all-time high of 4549. This does mean that the S&P 500 may face key resistance in the coming days. This includes a former rising support line from March, which could establish itself as new resistance. A turn back lower, with confirmation, may place the focus on the September low at 4260. Otherwise, the 61.8% and 78.6% Fibonacci extensions sit at 4581 and 4668 respectively.

Dow Jones sentiment outlook - Bullish

The IGCS gauge implies that about 32% of retail traders are net-short the Dow Jones. Downside exposure increased by 0.85% and 37.48% over a daily and weekly basis respectively. Since the majority of retail traders are net-short, prices may continue rising. The recent changes in sentiment are further underscoring a bullish contrarian trading bias.

Technical anlysis

Recent gains in Dow Jones futures have brought the index just shy of the all-time high at 35547. This followed a bounce off the 33839 – 33383 support zone and the 200-period Simple Moving Average. A rejection of the all-time high may send prices lower towards the long-term SMA. Otherwise, a breakout higher with confirmation exposes the 100% and 123.6% Fibonacci extension levels at 36028 and 36652 respectively.