Dow: More earnings on offer this week

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There were crucial pricing data on offer late last week, and preliminary consumer inflation expectations out of UoM (University of Michigan) rose to reverse a prior decline. It showed the 12-month horizon increase from 4.7% to 5.1% and the longer horizon from 2.7% to 2.9%, the latter matching the New York Fed’s survey.

As for September’s readings out of the Bureau of Labor Statistics released the day before, it was a clear disappointment as Consumer Price Index (CPI) rose 8.2% year-on-year (y/y) and month-on-month (m/m) at 0.4% with both above expectations of 8.1% and 0.2% respectively, more worrying was its core which excludes food and energy rising 0.6% m/m and 6.6% y/y respectively (as opposed to the headline y/y drop).

Trade pricing data showed import prices for the same month contract by 1.2% and export prices by 0.8% dragging down their respective y/y readings significantly.

Other economic data included UoM’s preliminary consumer sentiment which improved to 59.8, retail sales m/m for September unchanged with its core which excludes autos up 0.1% (its control group faring better up 0.4%), and business inventories for August up 0.8%. Central bank speak from the Federal Reserve’s (Fed) Bullard showed he wanted ongoing “frontloading” and that “if it was today” would go for 75bp in their December meeting, expecting next year to “be a data-dependent sort of year” where if there’s a “good disinflationary dynamic” would mean holding policy “steady”, Cook saying she’s “in the camp of steadier and slower” given the “full effect on the real economy is likely still playing out”.

Markets are now nearly fully pricing in a 75bp (basis point) rate hike for their November meeting, and roughly a coin toss on whether the terminal range will be 5-5.25%. The net result was a mixed bag for the US stock market with a couple of key indices in the red and the bearish overviews unchanged.

Bond market yields were in for a higher close for the week, in real terms though a slight pullback, inversions mostly worsening, and breakeven inflation rates climbing, so too the 5y 5y forward inflation.

As for the week ahead, it’s largely low impacting out of the US when it comes to economic data, the sum of which though important when it comes to the housing sector as we’ve got NAHB’s housing market index tomorrow, building permits, housing starts and the weekly mortgage applications on Wednesday, and existing home sales on Thursday.

We’ll also get both Empire’s manufacturing later today and that of the Philadelphia Fed on Thursday. As for earnings, more from financial heavyweights this week with Bank of America and (Dow 30 component) Goldman Sachs, but also includes staple giants like (component) Procter & Gamble on Wednesday and both Netflix and Tesla from the FAANG+MT group.

Dow Technical analysis, overview, strategies, and levels

Its previous weekly 1st Resistance level managed to hold, offering far more for weekly conformist sell-on-reversals compared to contrarian buy-breakouts, but zooming into the daily time frame and Thursday's volatility after the US CPI release went past its daily 1st Support level's S/L (stop loss) initially aiding conformist sell-breakouts, the recovery thereafter though going past its 1st and 2nd Resistance levels offering more for contrarian buy-breakouts.

Overall, the changes haven't shaken prices out of its wide bear channel, prices thus far avoiding the lower end of it though if holds would have big technical ramifications, especially for the daily's technical boxes.

IG client* and CoT** sentiment for the Dow

CoT speculator sentiment has dropped but remains heavy to the sell side at 66% following a rise in longs by 974 lots and a simultaneous drop in shorts by 401 lots. For the other key US indices, they remain majority short Russell 2000 (71%) and S&P 500 (62%) while shifting back to buy Nasdaq 100 (53%).

Retail trader bias starts off the week still majority buy, but in comparison to last week has dropped out of heavy buy 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 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.