FxWirePro: S&P500 broad trend still bullish

Bulls still in charge,

• The U.S. benchmark stock index, S&P500 has suffered sharp selloff this week on the back of rising trade friction between the United States and China, the world’s two biggest economies with a combined GDP of $31.63 billion.
• U.S. President Donald Trump’s weekend tweet, “For 10 months, China has been paying Tariffs to the USA of 25% on 50 Billion Dollars of High Tech, and 10% on 200 Billion Dollars of other goods. These payments are partially responsible for our great economic results. The 10% will go up to 25% on Friday. 325 Billions Dollars.... ....of additional goods sent to us by China remain untaxed, but will be shortly, at a rate of 25%. The Tariffs paid to the USA have had little impact on product cost, mostly borne by China. The Trade Deal with China continues, but too slowly, as they attempt to renegotiate. No!” brought the focus on Sino-American trade negotiations. The tweet was reportedly in response to China’s aim to renegotiate parts of the deal that has already been agreed upon.
• Thanks to the President’s tweet, the focus for the week would remain on the negotiations since Chinese delegations are expected to arrive in Washington.
• Initially, it was reported that China plans to cancel the delegation and stocks tanked further across the world. However, it is now apparently clear that the delegation is on its way to Washington led by Chinese Vice Premier Liu He.

The S&P500 has declined more than 100 points this week and currently trading at 2860 area (SPX500 - CFD of S&P500). Further downside remains open but our calculations suggest that the broad-trend is still bullish.

The current decline is just 3.3 percent from a peak, which suggests that it is a correction. Technically speaking a 20 percent decline theoretically indicates a trend change.

• Moreover, the retail sentiment points to a broader bullish trend. Data from IG markets, which is a UK-based company providing trading in financial derivatives such as contracts for difference and financial spread betting, points to bearish bias in the S&P500. IG markets’ retail positions data provide a glimpse to retail traders’ positions, which are largely used a contrarian indicator since retail positioning moves in the opposite direction to market movements.
• As of today, 67 percent of the retail positions are short on S&P500, while only 33 percent are bullish, which gives the index a bullish bias. However, the short positions have declined from 75 percent last week.