- The technical break from the US indices Monday didn’t catalyze into a full bear trend Tuesday, not exactly a surprise but Dow retail sentiment may qualify
- Start-of-the-year sentiment is a limited fundamental measure that would inevitably transition to a focus on the Georgia runoff election
- While there is greater weight to the final two senate seats in the United States, the market impact will pass – so what will take over fundamental later this week?
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That Collapse in Risk Trends to Start the Year Leveled Out Fast
Monday’s trading session for risk-leaning assets set a tone of notable fear. After weeks – if not years – of questionable speculative drift higher, markets finally falter on the opening day of the 2021. The symbolism was too rich to miss, but did the intent really live up to the threat? While I would call the opening technical salvo for the likes of the S&P 500, the Dow Jones Industrial Average and Nasdaq 100 a breakdown from a remarkably tight wedge (and from record highs), follow through would always be difficult to fulfill. That is in part due to a tepid liquidity position, but it is just as significantly influenced by a lack of fundamental drive. To transition from technical breakdown to committed market-wide deleveraging, something of a more systemic nature would be necessary to usher the markets lower. That fuel was noticeably lacking while anticipation of subsequent waves of fundamentals – like the special election in the US – was prominently in wait.
Chart of S&P 500 with 20-Day SMA (Daily)
Chart Created on Tradingview Platform
What may be surprising to some is the actions of retail traders to the slump in risk trends to start the week. Too often, retail market participants are labeled ‘dumb money’, but that is far from the reality of the situation. While there are certainly many skeptical bears seeded in the retail rank, this is not an affliction isolated to those with a smaller account size. In fact, retail traders are more likely to be directed by their time frame rather than their ideology about sentiment. In other words, such market participants are likely to position for swing/range trading than they are to line up for a dogmatic view of where the masses are going to head. A good example of this is retail CFD positioning in the Dow as measured by IG client sentiment. Despite the…
Go to the news source: Dow and Dollar Face Heavy Volatility Potential, What Comes after Georgia?