Analys från DailyFX
S&P 500 and Dow Jones Flash Warning Signs
Major global equity indices continue to trade at or near fresh record peaks, and yet our IG Client Sentiment Index shows the majority of retail speculators continue selling into recent rallies. We have used this as clear contrarian signal that equity markets may continue onto further records. The critical question moving forward is nonetheless clear—does current sentiment warn of extremes and imminent reversal?
The short answer is straightforward: probably.
Our data shows a massive 83% of traders with open positions in the US 500 remain short, while positions on the Dow Jones-tracking ‘Wall Street’ contract stand at 85% short and FTSE 100 at a near-record 90% short.
We often see such heavily one-sided positions at major price and sentiment extremes, and the fact that traders short massively outnumber those long warns that we are at such an extreme.
US 500 Sentiment Near Record-Short as Index Presses to Fresh Highs
Why and how do we use IG Client Sentiment in trading? See our guide and real-time data.
The major caveat is nonetheless simple: price and sentiment extremes are, by definition, only clear in hindsight. If we look at past incidences of such one-sided positioning it seems clear they precede key turning points: the SP 500 and Dow Jones reversed lower through early March when sentiment hit over 80% short (below 20% long). Of course sentiment remained at least 80% short for over a month as both indices continued onto fresh record highs.
It remains impossible to identify the true sentiment extreme, and caution is advised against joining ‘the crowd’ as they sell into equity market gains.
Client Sentiment Remained Extreme on Dow Jones through Extended Rally
Why and how do we use IG Client Sentiment in trading? See our guide and real-time data.
Sentiment can remain heavily short for extended periods of time, and until we see material signs of turnaround we will remain cautious in trading for an SP 500 pullback. This remains true for the Dow Jones Industrial Average and FTSE 100 as well. And indeed our technical forecasts for these major markets warn to expect market indecision.
— Written by David Rodriguez, Senior Strategist for DailyFX.com
Contact David via
Twitter at https://www.twitter.com/DRodriguezFX
What’s inside:
- EURUSD broke the ‘neckline’ of a bearish ‘head-and-shoulders’ pattern, April trend-line
- Resistance in vicinity of 11825/80 likely to keep a lid on further strength
- Targeting the low to mid-11600s with more selling
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Coming into last week we pointed out the likelihood of finally seeing a resolution of the range EURUSD had been stuck in for the past few weeks, and one of the outcomes we made note of as a possibility was for the triggering of a ’head-and-shoulders’ pattern. Indeed, we saw a break of the ’neckline’ along with a drop below the April trend-line. This led to decent selling before a minor bounce took shape during the latter part of last week.
Looking ahead to next week the euro is set up for further losses as the path of least resistance has turned lower. Looking to a capper on any further strength there is resistance in the 11825-11880 area (old support becomes new resistance). As long as the euro stays below this area a downward bias will remain firmly intact.
Looking lower towards support eyes will be on the August low at 11662 and the 2016 high of 11616, of which the latter just happens to align almost precisely with the measured move target of the ‘head-and-shoulders’ pattern (determined by subtracting the height of the pattern from the neckline).
Bottom line: Shorts look set to have the upperhand as a fresh month gets underway as long as the euro remains capped by resistance. On weakness, we’ll be watching how the euro responds to a drop into support levels.
For a longer-term outlook on EURUSD, check out the just released Q4 Forecast.
EURUSD: Daily
—Written by Paul Robinson, Market Analyst
You can receive Paul’s analysis directly via email bysigning up here.
You can follow Paul on Twitter at@PaulRobinonFX.
Why and how do we use IG Client Sentiment in trading? See our guide and real-time data.
EURUSD: Retail trader data shows 37.3% of traders are net-long with the ratio of traders short to long at 1.68 to 1. In fact, traders have remained net-short since Apr 18 when EURUSD traded near 1.07831; price has moved 9.6% higher since then. The number of traders net-long is 15.4% lower than yesterday and 16.4% higher from last week, while the number of traders net-short is 0.4% higher than yesterday and 10.5% lower from last week.
We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests EURUSD prices may continue to rise. Positioning is more net-short than yesterday but less net-short from last week. The combination of current sentiment and recent changes gives us a further mixed EURUSD trading bias.
— Written by Christopher Vecchio, CFA, Senior Currency Strategist
To contact Christopher Vecchio, e-mail cvecchio@dailyfx.com
Follow him on Twitter at @CVecchioFX
To be added to Christopher’s e-mail distribution list, please fill out this form
Why and how do we use IG Client Sentiment in trading? See our guide and real-time data.
GBPUSD: Retail trader data shows 38.2% of traders are net-long with the ratio of traders short to long at 1.62 to 1. In fact, traders have remained net-short since Sep 05 when GBPUSD traded near 1.29615; price has moved 3.4% higher since then. The number of traders net-long is 0.1% higher than yesterday and 13.4% higher from last week, while the number of traders net-short is 10.6% lower than yesterday and 18.3% lower from last week.
We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests GBPUSD prices may continue to rise. Yet traders are less net-short than yesterday and compared with last week. Recent changes in sentiment warn that the current GBPUSD price trend may soon reverse lower despite the fact traders remain net-short.
— Written by Christopher Vecchio, CFA, Senior Currency Strategist
To contact Christopher Vecchio, e-mail cvecchio@dailyfx.com
Follow him on Twitter at @CVecchioFX
To be added to Christopher’s e-mail distribution list, please fill out this form
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