Dow 30: Bracing for more data, earnings, and events

Non-Farm Payrolls beat wipes out 50bp rate cut likelihoods

There’s been plenty to digest and on multiple fronts, but in terms of data the focus was on US Non-Farm Payrolls releasing last Friday for the month of September. It showed growth of 254K easily besting 150K estimates (and included 72K of upward revisions for August and July), and the unemployment rate falling a notch to 4.1%. Other items to note included wage growth up 0.4% month-on-month (m/m) and 4% year-on-year (y/y) both better than expected, the underemployment rate dropping to 7.7%, and the employment-population ratio moving up to 60.2%. That helped key US equity indices in finishing higher for the session and week, though data aside and market participants were (and still are) digesting geopolitical tensions as oil enjoyed its best weekly finish in over a year. In terms of market pricing (CME’s FedWatch) for future rate action out of the Federal Reserve (Fed), almost fully pricing in a 25bp (basis point) cut with 50bp likelihoods wiped out.

Week Ahead: CPI, PPI, earnings, and FOMC minutes

As for the week ahead, it starts off relatively light out of the US with consumer credit figures for the month of August giving added insight into the sustainability of consumer spending, and remains light over the next two days when looking at the data alone with NFIB and RCP/TIPP’s optimism readings tomorrow and the weekly mortgage applications on Wednesday. That means the attention on this front will be on Thursday’s pricing data where we’ll get CPI (Consumer Price Index) figures for the month of September. Expectations are the headline y/y print will fall from 2.5% to 2.3%, though at this stage policymakers are noting the m/m readings and whether it’ll be a contained one for its core after August’s 0.3%.

Producer prices for the same month release on Friday where core m/m in August was also a bit too high for comfort at 0.3%, shortly thereafter the preliminary prints out of UoM (University of Michigan) for October where consumer sentiment has been edging higher but only slightly over the past few months while inflation expectations average lower.

On the monetary policy front we’ve got the minutes from the latest FOMC meeting releasing on Wednesday, and that’s the one where they opted for a larger 50bp cut. And let’s not forget earnings with PepsiCo on Tuesday, Delta Airlines on Thursday and a few financial heavyweights on Friday including JPMorgan Chase.

Those of you trading energy are already busy digesting the geopolitical scene, but in addition to that and the weekly readings out of API and EIA there’s the latter’s STEO (Short-Term Energy Outlook) releasing tomorrow (while the diverging monthly oil market reports out of IEA and OPEC are next week).

Dow Technical analysis, overview, strategies, and levels

Another positive weekly finish and close higher has kept most of its key technical indicators on the weekly time frame positive with price remaining above all its main weekly moving averages, at the upper end of the Bollinger Band, on the DMI (Directional Movement Index) front a decent margin for the +DI over the -DI, and its RSI (Relative Strength Index) shy of overbought territory. Its ADX (Average Directional Movement Index) by one calculation is getting closer to trending territory. All that and it’s difficult to have an overview that isn’t bullish, here it was and remains ‘bull average’ working with a sizable bull channel and stalling characteristics on the daily time frame where upside momentum has been difficult to come by. It’s also been relatively quiet in terms of intraweek volatility, lacking a play for both conformists and contrarians last week as the lows failed to reach its previous weekly 1^st Support. It doesn’t change the overview nor strategies in both camps, but it does mean traders remain cautious for when volatility does pick up.

IG client* and CoT** sentiment for the Dow

CoT speculators are getting ever closer to extreme buy territory though given momentum correlation is relatively high for this index means it shouldn't come as a surprise, with an increase in longs (by 1,922 lots) that was larger in both absolute and percentage terms than the increase in shorts (by 308). IG clients briefly fell out of extreme sell bias intraweek on the pullback in price last Thursday only to short into Friday's gains and take it back up, and at the start of this week are higher at 84%.

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.