Dow 30: slight weekly retreat fails to shift its technical overview

[MongiIG]

Sentiment amongst retail traders reaches extreme sell territory, while CoT speculators opt to hold on to their heavy buy bias.

 

Source: Bloomberg

 

Shares Federal Reserve Federal Open Market Committee Consumer price index Inflation Commitments of Traders

Written by: Monte Safieddine | Market analyst, Dubai

 

Publication date: Monday 19 February 2024 07:28

More disappointing pricing data, and cautious Fed member speak.

Quite a bit to digest late last week, with more disappointing data on the pricing front. PPI (Producer Price Index) for the month of January was hotter than anticipated at 0.9% year-on-year (y/y) headline, with its core up 2%, and anything but controlled growth month-on-month (m/m) with readings of 0.3% and 0.5%, respectively. The preliminary readings out of UoM (University of Michigan) showed consumer inflation expectations up a notch to 3% for the 12-month but held for the five-year at 2.9%, and its consumer sentiment figure rising again, if only slightly this time around, to 79.6. Trade pricing data released the day before that also showed hotter m/m growth, and with retail sales down for the same period by 0.8%, it wasn’t the narrative optimists had hoped for. In Federal Reserve (Fed) member speak, there was Daly advocating patience and three rate cuts this year, and Bostic prior on “returning our policy stance to a more neutral stance in the summer time.”

Large-cap US equity indices were in for a slight retreat, undoing intraweek record highs with tech suffering, while small-cap finished higher. Over in the bond market, Treasury yields finished the week higher, and so too in real terms, breakeven inflation rates creeping up again, and market pricing (CME's FedWatch) closer to fully pricing in a Fed hold next month, via majority holding in May, and looking at the first rate cut in June.

Week ahead: earnings from Nvidia, FOMC minutes, and preliminary PMIs.

As for the week ahead, a light start with a US holiday today, and it’ll remain light until we get minutes out of the latest FOMC (Federal Open Market Committee) meeting on Wednesday. The weekly inventory data out of API and EIA will be pushed out a day to Wednesday and Thursday, respectively. On the latter day is when we’ll also get preliminary PMIs (Purchasing Manager’s Index) where manufacturing and services are expected to remain in expansionary territory even if only just for the former. There will be more housing data, be it the weekly mortgage applications on Wednesday, or existing home sales on Thursday, this after building permits and housing starts released last Friday for the month of January were a clear miss and down on prior readings.

In earnings, there’s Home Depot and retail giant Walmart tomorrow, and the big one on Wednesday with the last of the magnificent seven to report, Nvidia, now the third-largest US company by market capitalization. The implications are far larger for the tech sector, given the investment flows that have been going into tech and AI.

Dow technical analysis, overview, strategies, and levels

Even after last Tuesday's CPI (Consumer Price Index) shock, and its previous weekly 1st Resistance level managed to hold, favoring conformist buy-after-significant reversals, that outperformed on the move back up, with the small weekly change keeping the technical boxes here unchanged and so too its technical overview. As for the daily time frame late last week, going well past Thursday's 1st and 2nd Resistance level before the pullback on Friday brought it back beneath the 2nd Resistance, in all conformist buy-breakouts winning out there, and contrarian sell-after-reversals stopped out.

 

 

Source: IG

IG client* and CoT** sentiment for the Dow

CoT are on hold in heavy buy territory at 73%, with relatively small changes in both long and short positioning (longs +673 lots, shorts +114). IG clients started off the week beneath extreme sell levels and last Tuesday's price drop was an initial boon, but the recovery thereafter, even if partial, has pushed sentiment to an extreme short 80%.

 

Source: IG

Dow chart with retail and institutional sentiment

 

Source: IG

• ^{*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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