While the S&P 500 is nearing its record high, hedge funds and other investors have become increasingly pessimistic.
The Commodity Futures Trading Commission released data on Friday showing that net speculative wagers dropped from minus 23.50k to minus 84k in the last week.
The S&P 500 and the ETFs that it is associated with, such as SPDR (SPY), iShares IVV and Vanguard (VOO), continued to rise. On Friday, the S&P 500 index was at $5,630, just a few percentage points lower than its highest level this year.
The rally was accelerated when Jerome Powell (the Federal Reserve chairman) hinted at the possibility that interest rates would be cut in the near future.
When the Fed cuts rates, the S&P 500 and other US indexes such as the Dow Jones or Russell 2000 perform well. This is because investors are moving their money from bonds with low yields to riskier investments like stocks.
Recent earnings showed most companies enjoyed a successful quarter. Average earnings growth in Q4 was 10.9%. This is the highest since Q4’21.
Hedge funds are likely to be bearish because the S&P 500 has formed a chart pattern with a double top on the daily chart. This pattern, which is based on technical analysis and can be identified by twin peaks as well as a neckline, has two peaks.
A double-top asset will usually have a sudden reversal. Bulls must push the price above $5,670 in order to nullify the double-top. This will increase the likelihood that both the index itself and the ETFs it tracks will experience a major reversal within the next few months.
A reversal could also be possible because the Fed’s rate reduction was already factored in by participants on the market. There is therefore a chance that investors and traders will start to sell as Powel hype begins to fade. With the Fed’s focus now on reducing interest rates and the Bank of Japan still considering rate increases, it is likely that we will see the Japanese yen carrying trade unwind again, as was seen earlier in the month.
The post Hedge Funds Turn Bearish on S&P500 (SPY ETF); Double-Top Forms may be Modified as Updates unfold
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