Dow 30: futures move closer to last week’s record highs

Hawkish Fed member speak fails to halt post-FOMC rally

Late last week, several significant indicators emerged from the US, with preliminary Purchasing Managers’ Index (PMIs) for this month from S&P Global revealing a deterioration in manufacturing to 48.2, remaining in contraction, and Empire’s reading dropping from 9.1 to -14.5. However, the more crucial services sector improved to 51.3, staying in expansionary territory.

Key US stock indices were in for notable weekly gains and a record high for the Dow (and close for the Nasdaq), with much of it occurring after the Federal Open Market Committee (FOMC) dovish tilt. In the bond market, treasuries week-on-week (w/w) in for big declines, and in real terms averaging about 20bp (basis points) lower for the 5Y-30Y, with market pricing (CME’s FedWatch) on the first rate cut in March despite Federal Reserve's William’s comments regarding not “really talking about rate cuts right now” and Bostic on cutting “sometime in the third quarter”, and net far more optimistic on the total amount of cuts to expect next year when compared to the Fed’s latest dot plot.

Week ahead: PCE, housing data, and more

As for the week ahead, we’ll have to go in reverse for those wanting more impacting data out of the US Personal Consumption Expenditures (PCE) price index for the month of November, releasing on Friday, and is expected to show year-on-year (y/y) growth of 2.8% falling from 3% prior, with its core (which excludes food and energy) a notch lower to 3.4%. The revised figures out of University of Michigan (UoM) will also be released that day, and this is definitely one of those times where market participants will be hoping the plummet in its preliminary readings for consumer inflation expectations (from 4.5% to 3.1%) can stick.

Final Gross Domestic Product (GDP) for the third quarter will be released on Thursday, though none are worried after what have been stellar advance and preliminary figures (this quarter’s growth expected to be much less but still decent enough with the Atlanta Fed’s GDPNow estimate at 2.6%).

CB’s consumer confidence will be on Wednesday, and while it has managed to beat estimates a couple times in a row, it’s been a story of four consecutive drops and quite a distance from pre-pandemic levels.

There will be plenty out of the housing sector, NAHB tonight expected to show an ongoing sub-50 reading (signifying a negative outlook), both building permits and housing starts for the month of November tomorrow after enjoying upside surprises prior, though the same couldn't be said for existing and new home sales last time around with fresh readings available from both this week as well.

Dow technical analysis, overview, strategies, and levels

We got a move past its previous weekly first and second resistance levels, giving conformist buy-breakout strategies and an easy win and lacking a trigger for contrarian buy-after-reversals on the move past the first resistance. On the daily time frame late last week, we got a close above Thursday's first resistance level and a move that briefly got past its second resistance, there too conformist buy-breakouts winning out, but more clearly when combined with Friday's intraday highs, contrarian sell-after-reversals at times looking to capitalize on pullbacks, but eventually getting stopped out. In all, the technical overview remains ‘bull average’ with much of the action within a narrow bull channel, though easily taken for a ‘stalling bull’ given the trending ADX (Average Directional Movement Index).

IG client* and CoT** sentiment for the Dow

CoT speculators have shifted from the middle to majority short territory, though due to a larger drop in shorts (by 3,428 lots) than longs (by 285). As for retail traders, they have fallen out of extreme sell territory, but only just, and this is despite the price gains suggesting older shorts are getting severely tested, while some traders shift to momentum from previous range-trading strategies.

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.}