Retail trader bias shifts from majority buy to the middle, CoT speculators not far off from extreme sell territory.
Upside surprise for pricing data
Starting with the data, and it’s been mostly about pricing as of late. Last Thursday’s consumer price index (CPI) readings were hotter than anticipated for the headline while as anticipated for its core. Trade pricing data on Friday with ongoing year-on-year (y/y) negative prints are recovering and there is month-on-month (m/m) positive growth for both exports and imports.
Preliminary figures out of the University of Michigan (UoM) show consumer inflation expectations jumping to 3.8% for the 12-month and five-year rising to 3%. Its consumer sentiment reading a clear miss falling to 63.
Fed speak softens, yields pull back
There was more central bank speak on offer, the Federal Reserve’s (Fed's) president Patrick Harker believing they “are at the point where we can hold rates where they are”, that policy is now restrictive and “holding rates steady will let monetary policy do its work”, though uncertain of how long rates will need to remain where they are.
Treasury yields finally suffered a red week and so too in real terms on the flight to safety after the rise in geopolitical risk and softer comments from some Fed officials managed to offset other factors including a weak auction late last week.
Earnings recap of the financial heavyweights
As for earnings from the financial heavyweights last Friday, JPMorgan Chase are enjoying an increase in revenue thanks to “over-earning” on net interest income that was stronger than anticipated with credit provisions lower, and Citigroup’s core businesses “each posting revenue growth”.
Also on the earnings front, Wells Fargo’s revenue growth thanks to net interest income and investments, and BlackRock suffering a drop in net inflows and its total assets under management (AUM) falling from the second quarter.
For the week ahead, impactful data from the US will be deferred until tomorrow when we receive retail sales figures for the month of September, following a 0.6% growth in the previous month (figures are not adjusted for inflation). However, it is the data for the final months of this year that are expected to reveal a more challenged consumer.
Attention then shifts to the housing sector with the release of the National Association of Home Builders' (NAHB's) housing market index, which previously missed expectations with a figure indicating a negative outlook. This will be followed by building permits and housing starts for September; the August data showed a clear beat for the former and a clear miss for the latter.
Also on the agenda are weekly mortgage applications and Thursday's existing home sales data, which have missed expectations three times consecutively. Little surprise there, as those locked into lower rates are inclined to hold. There will be numerous Federal Reserve member speeches this week, including one from Chairman Powell.
In the earnings landscape, financial sector updates will continue with Bank of America and Goldman Sachs releasing their reports tomorrow. Tesla, the first among the 'Magnificent Seven,' will report on Wednesday. Netflix is also scheduled to release its figures on the same day, as are ASML and Lam Research, providing early insights into the performance of the semiconductor industry.
Dow technical analysis, overview, strategies, and levels
Starting with the weekly time frame, the asset's previous weekly 1st Resistance level did manage to hold on multiple occasions, at least once triggering cautious, conformist sell orders following significant reversals. The overall sentiment here remains one of 'cautious consolidation'.
On the daily time frame, the asset has been struggling, exhibiting a 'bear average'. Late last week, it moved below Thursday's 1st Support level as well as its S/L (stop-loss), initially favouring daily conformist sell-breakouts. However, a subsequent recovery triggered contrarian buy-after-reversals, which on net balance had more positive outcomes.
IG client* and CoT** sentiment for the Dow
Price gains have enticed retail traders to shift from what was majority buy 58% at the start of last week to the middle, ending what has been a relatively brief period of majority buy bias. CoT speculators were and still are heavy to the sell side, a drop in longs and a simultaneous rise in shorts taking the bias closer to extreme short territory.
Dow chart with retail and institutional sentiment
*The percentage of IG client accounts with positions in this market that are currently long or short. Calculated to the nearest 1%, as of the start of this week for the outer circle. Inner circle is from the start of last week.
**CoT sentiment taken from the CFTC’s Commitment of Traders report, outer circle is latest report released on Friday with the positions as of last Tuesday, inner circle from the report prior.
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