Dow: gains that aren’t gone and traders that won’t back down

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US Q2 earnings: Key highlights

The second quarter US earnings captured substantial attention. JPMorgan Chase easily beat both earnings and revenue estimates, with a significant leap in net interest income and an upward revision of the year's guidance to $87bn. On the other hand, Wells Fargo witnessed a rise in net income, attributing it to higher rates, although more funds were set aside for potential losses.

Citigroup outperformed estimates, albeit slightly, on earnings, but its net income dropped by over a third due to a "challenging macroeconomic backdrop" and the fact that the "long-awaited rebound in Investment Banking has yet to materialize".

Lastly, BlackRock beat expectations as well as increased its assets under management (AUM), but fell short on net inflows.

Latest pricing data from the US

The end of last week brought forth a wealth of new pricing data from the US. The University of Michigan’s (UoM) preliminary readings for consumer inflation expectations displayed a rise in the 12-month expectation to 3.4% and an identical increase for the five-year expectation to 3.1%. These numbers are coupled with a surge in its sentiment figure to levels not seen in nearly two years.

On the same day, trade pricing data was released, presenting both import and export prices on a month-on-month (m/m) and year-on-year (y/y) basis. These figures came in lighter than anticipated, with declines of -0.2%, -6.1%, -0.9%, -12% respectively.

A day earlier, the release of producer prices offered an additional positive sign. The y/y headline fell to just 0.1% with core figures standing at 2.4% and m/m figures of 0.1% for both. Notably, all four of these measures fell below estimates.

Federal Reserve's stance on policy tightening

In central bank speak, there was the Federal Reserve’s (Fed) Waller saying there’s “room to tighten policy further” and in favor of two more increases. He sees “no reason why the first of those two hikes should not occur” at their meeting next week. However, there’s been a change in terms of market pricing (Refinitiv) of future rate hikes since the start of last week before the CPI (Consumer Price Index) print.

The market is still nearly fully pricing in a 25bp (basis point) rate hike but a smaller minority on another increase of the same magnitude in November, and bringing forward the first play next year for a rate cut from 5.25-5.5% (should it reach there).

US economic data and housing sector

As for the week ahead, if we’re looking at it in terms of US economic data, it doesn’t look as exciting.

The exception is likely tomorrow’s retail sales for the month of June where expectations are we’ll see growth of 0.5% m/m overall and slightly less for its core. There are a couple Fed branches releasing their respective manufacturing index readings. However, if we’re looking at collective data on a particular sector, it might be more interesting on the housing front.

There have been positive surprises from the National Association of Home Builders (NAHB) in regard to its housing market index as of late. Its figure is due for release tomorrow. In addition, building permits and housing starts data from the Census Bureau are scheduled for release on Wednesday. These statistics showed stronger readings during their last release.

Ahead of these, the Mortgage Bankers Association (MBA) will be sharing its weekly mortgage applications data. The previous print indicated an uptick of 0.9%. Furthermore, existing home sales data from the National Association of Realtors will be out on Thursday. Even though it beat expectations in May, the metric is still well beneath pre-pandemic levels. Homeowners with existing properties are holding onto favourable mortgage rates in the current high-interest rate environment.

Upcoming earnings focus

Expect the focus on earnings to only pick up over the next few weeks, and on offer we’ve got Bank of America and Morgan Stanley tomorrow, Tesla (first of the ‘magnificent seven’ to report) and Netflix on Wednesday alongside more financial firms like Goldman Sachs, and Johnson & Johnson on Thursday.

Dow technical analysis, overview, strategies, and levels

We got a cross and close above its previous weekly 1st Resistance level, with the oscillations late last week largely above it with more on offer for contrarian buy-breakouts, and keeping the positive technical bias intact in both weekly and daily time frames.

On the daily time frame, the action late last week showed Thursday's 1st Resistance level only holding when combined with Friday's follow-through, and more on offer for conformist sell-after-significant reversals than contrarian buy-breakouts but in all not moving far from the key level.

At this stage, given the buildup in positive technical bias, ideally more caution in both time frames for those going opposite gains given the technical overview is blurred between consolidation and 'bull average'.

IG client* and CoT** sentiment for the Dow

As for sentiment, there’s been a notable increase in majority short retail trader bias, rising from 55% at the start of last week to a heavy sell 71% at the start of this week. CoT speculators are also still majority short, and have taken their bias from 61% to 64% (longs dropping 1,028 lots, shorts rising 4,475).

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 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.}