Photo: Bloomberg

Speculators are Turning Bearish on the S&P500

A number of sentiment and technical indicators are starting to display ominous warning signs for US equities, indicating that a short-term downward movement in US equities is imminent.

Looking at the earnings season, one would expect investors to be more upbeat about US stocks. As of the time this article was written, 45% of S&P 500 companies have reported quarterly results with over 80% of these results surprising positively. Regardless, investors seem to be turning bearish, as the latest CFTC data show that speculators have started to trim their long exposure in S&P500 futures (Figure 1).

Figure 1: Net positioning in US S&P500 futures (Source: JP Morgan)

More long-term oriented investors, such as mutual funds, have also continued to decrease their exposure towards the S&P500 (Figure 2). In addition to this, hedge funds appear to be adopting a similarly cautious stance, as both long/short funds and macro oriented funds continue to reduce their beta exposure towards the S&P500 (Figure 3).

Figure 2: Balanced mutual fund exposure towards S&P500 (Source: JP Morgan)

Figure 3: L/S hedge fund and macro hedge fund beta towards S&P500 (Source: JP Morgan)

Furthermore, economic momentum in the US has slowed markedly, suggesting that the positive effects from lower oil prices have yet to revitalize the US economy (Figure 4). In contrast, S&P500 earnings have been downgraded sharply due to lower earnings expectations of US energy companies. Therefore, the US economy is providing little to no support in compensating for lost energy sector earnings at the moment.

Figure 4: Citi US economic surprise index and 3-month earnings revisions of the S&P500 (Source: Thomson Reuters)

To top it off, the Federal Open Market Committee’s (FOMC) de facto “messenger”, St. Louis FED President James Bullard, spoke on Bloomberg TV last week to warn investors that they are wrong in believing that the FED will postpone rate hikes. This means that investors have to potentially price in a more hawkish FED in the coming months, a risk which was signaled in a previous Foresight article. It goes without saying that a more hawkish FED is a near-term bearish factor for US equities.

All of this negative sentiment and news comes at a time when the S&P500 is in increasingly weak technical shape (Figure 5). The index has broken below its long-term uptrend (blue line), and is currently trading under the 50 day moving average (dma). Furthermore, the MACD indicator is steadily decreasing, while the RSI index hovers under the 50 mark. All in all, the chart pattern seems weak, and it is likely that the S&P500 will break below the current support zone and the psychological 200dma. As a result, I believe that a downward move to the support zone between $1900 and $1800 is imminent.

Figure 5: Technical analysis of the SPY ETF as per February 1st 2015


Sentiment indicators towards US equities are starting to flash warning signs, while US economic data remains anemic. Further exacerbating the already lackluster bias towards US stocks is the very real risk that investors have to readjust their projections of FED rate-hikes.

Combined with the weak technical condition of the S&P500, this reinforces my belief that a correction in US equities is imminent. It is my view that the S&P500 index will correct in the coming weeks towards the support zone between $1900 and $1800.

I currently have a target of $1850 for the S&P500 in the short-term. Because of this, I am of the opinion that investors should increase their short exposure towards the S&P500. 

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Simon Waslander

Simon is the CEO and Editor-in-Chief of Foresight Investor. He has been following the markets passionately for over 7 years.

This article provides opinions and information, but does not contain recommendations or personal investment advice to any specific person for any particular purpose. Do your own research or obtain suitable personal advice. You are responsible for your own investment decisions.

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