Dow Jones, S&P 500 forecast: retail crowd long exposure keeps hinting at downside

The Dow Jones and S&P 500 may be at risk ahead as retail traders continue to boost their upside exposure on Wall Street. This can be taken a look at through the lens of IG Client Sentiment (IGCS), which tends to function as a contrarian indicator. For a deeper dive into factors that may drive volatility ahead, including fundamental analysis, check out the recording of this week’s webinar in the recording above.

Dow Jones sentiment outlook - bearish

The IGCS gauge shows that about 66% of retail traders are net-long the Dow Jones. Since the majority of them are biased to the upside, this hints that prices may continue falling. This is as long bets increased by 14.53% and 15.27% compared to yesterday and last week respectively. With that in mind, the combination of current sentiment and recent changes is producing a stronger bearish contrarian trading bias.

Dow Jones daily chart

Dow Jones futures remain in a downtrend, with the latest swing low and swing high at 29639 and 31867 respectively. Immediate support seems to be the 30512 – 30803 inflection zone, which is made up of lows from March 2021. A bearish Death Cross remains between the 50- and 100-day Simple Moving Averages (SMAs). These may reinstate the dominant downside focus in the event of a turn higher. Further losses would place the focus on the 78.6% Fibonacci extension at 29552.

S&P 500 sentiment outlook - bearish

The IGCS gauge shows that roughly 64% of retail traders are biased to the upside in the S&P 500. Since most of them are net-long, this suggests that prices may continue falling. Meanwhile, long exposure rose by 11.04% and 11.73% compared to yesterday and last week respectively. Taking this into account, the combination of current sentiment and recent shifts is offering a stronger bearish contrarian trading bias.

S&P 500 daily chart

S&P 500 futures remain in a downtrend following the latest series of swing highs and swing lows. Moreover, the breakout under a bearish Head and Shoulders chart formation remains in play. That continues to hint at downside potential. Resuming the downtrend entails clearing the swing low near 3656, placing the focus on the 3541 – 3587 inflection zone. In the event of a turn higher, the 50-day SMA could reinstate the broader downside focus.

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