Dow: Futures pointing lower after week of small gains

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Pricing and expectations: Unraveling the data

More pricing data to digest occurred last Friday after the release of the Consumer Price Index (CPI) the day before, which showed growth of 3.2% year-on-year (y/y) for the headline and 4.7% at its core, both lighter than expected. Month-on-month (m/m) growth was as anticipated at 0.2%. Producer prices were up next and were higher than forecast across the board at 0.8%, 2.4%, and 0.3% respectively, but involved revisions lower with June’s m/m headline lacking growth and its core dropping 0.1%.

Preliminary figures for consumer inflation expectations from UoM (University of Michigan) dropped slightly, settling at 3.3% for the 12-month horizon and 2.9% for the five-year outlook. This adjustment bodes well on the pricing front. However, the sentiment figure took a dip, falling to 71.2.

Little change for stocks, losses for bonds

Key stock indices saw small weekly changes, with tech in retreat. The bond market remained in focus as Treasury yields finished the week higher (and also in real terms). Market pricing (Refinitiv) for future actions from the US Federal Reserve (Fed) has remained little changed for some time, avoiding majority pricing in a rate hike from the US central bank in the current cycle, though there remains a significant minority for November.

Week ahead – Retail

Looking at the week ahead, it starts off very light with little on offer today, but picks up tomorrow with retail sales for July. Expectations are for ongoing growth (the figures aren’t adjusted for inflation), both overall and at its core when excluding automobiles. On the retail earnings front, there’s Walmart (a Dow 30 component) on Thursday.

The spotlight is on housing and trade data

Housing is expected to attract more attention, with NAHB’s housing market index tomorrow, which has seen two consecutive months of gains. Earnings from home improvement retailer Home Depot (also a component of the index), the weekly mortgage applications on Wednesday after consecutive declines, and both building permits and housing starts released shortly thereafter, all near pre-pandemic levels, but both missed last time around.

Trade pricing data has been a story of negative prints for exports and imports, both m/m and y/y. Manufacturing indices from both the New York and Philly Fed branches, and industrial production will also be on offer, not to mention the weekly oil rig and inventory readings.

FOMC minutes unveiled

Minutes from the latest FOMC (Federal Open Market Committee) meeting will be released this Wednesday, with both investors and traders searching for any hints that we’re at the peak, even as Fed member speech has been mixed on the matter.

Dow technical analysis, overview, strategies, and levels

Although there was a higher weekly finish, it failed to reach its previous weekly 1st Resistance level. This resulted in a lack of a play here on the weekly time frame for conformists and contrarians.

There was volatility on the daily time frame late last week following the US CPI release that favored daily contrarian buy-breakouts in that time frame (where it shifted to 'cautious consolidation' prior), needing Friday's intraday lows to give tested conformists a chance at redemption.

More caution is anticipated at this stage when it comes to both weekly and daily time frames, with the technical overview shifting here from ‘bull average’ prior.

IG client* and CoT** sentiment for the Dow

In terms of sentiment, there has been minimal change among CoT speculators, resulting in a slight increase in the buy bias to 53% (longs -3,120, shorts -4,646 lots). However, they still maintain a majority sell position in the other prominent US indices: 62% for the S&P 500, 55% for the Nasdaq 100, and 70% for the Russell 2000.

On the other hand, retail traders continue to exhibit a predominant short bias, with this inclination shifting from a heavy sell of 73% to just shy of an extreme sell at the beginning of this week.

_{*The percentage of IG client accounts with positions in this market that are currently long or short. Calculated to the nearest 1%, as of today morning 8am for the outer circle. Inner circle is from the previous trading day.
**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.}