Dow 30: Futures show 40,000 breach still holding
Gains expected at the open as ‘Trump trade’ outperforms, while in sentiment CoT speculators hold in majority buy territory while clients reach extreme sell.
Mixed US data, a week of outperformance for small-cap, and the Trump trade outperforming at the open
More US pricing data to digest last Friday after Thursday’s lighter CPI (Consumer Price Index) figures, where Producer Price Index (PPI) disappointed for the month of June experiencing month-on-month (m/m) growth of 0.2% headline and 0.4% for its core, with the readings for the year-on-year (y/y) at 2.6% and 3% respectively. As for UoM’s (University of Michigan) preliminary prints for consumer inflation expectations, the 12-month and five-year both dropping a notch to 2.9%. Consumer sentiment was a miss opting to continue averaging well below pre-pandemic levels.
There was attention on earnings from the financial heavyweights with a beat on earnings and revenue for Citigroup and JPMorgan Chase where investment banking was a clear plus, and it was Wells Fargo’s share price suffering most as it missed on interest income.
Key US large-cap equity indices mostly finished the week higher with the Dow 30 breaching 40,000, the real attention on the small-cap Russell 2000 and S&P MidCap 400 both faring much better in percentage terms. Market pricing (CME’s FedWatch) isn’t far off fully pricing in a rate cut out of the US Federal Reserve (Fed) in September and by similar margins for a second in December (where via majority it’ll be three cuts for this year).
The open has been more about digesting the assassination attempt with the dollar gapping higher and bond futures lower, the ‘Trump trade’ generally outperforming as polls show further gains on the likelihood of an election victory.
Week Ahead: Retail sales, more earnings, and FOMC members speaking
As for the week ahead, we won’t have to wait long for impacting data with retail sales for the month of June releasing tomorrow, the story as of late one of little to no growth and struggles for its core (which excludes autos), with expectations it’ll be the opposite with headline down slightly and core up 0.1%. A couple Fed manufacturing indices with New York’s today and Philadelphia’s on Thursday, and plenty of housing data in between with NAHB’s housing market index tomorrow after suffering consecutive sub-50 prints, building permits and housing starts on Wednesday both dealing with successive misses, and the weekly mortgage applications the same day.
There are FOMC (Federal Open Market Committee) members speaking this week including Chairman Powell today, and there’s the Beige Book release on Wednesday. It’ll get busier on the earnings front, Goldman Sachs and BlackRock today, Bank of America and Morgan Stanley tomorrow, Johnson & Johnson on Wednesday, Netflix on Thursday, and American Express on Friday.
Dow Technical analysis, overview, strategies, and levels
The technical overview for the Dow on the weekly time frame was and still is ‘bull average’, and with a bit more clearance on the daily time frame between price and key daily technical indicators not far off shifting the overview there to match it here. That has meant buy strategies on the weekly time frame remain in the conformist camp be it via breakout off the 1st Resistance or off the 1st Support level but only after a significant reversal avoiding fading the move. Those anticipating the highs to hold or even a potential pullback can look to contrarian strategies selling the 1st Resistance after a reversal (also avoiding fading the move), and selling the 1st Support level for a breakout anticipating a move lower.
IG client* and CoT** sentiment for the Dow
CoT speculators shifted back to majority buy territory a couple weeks ago and have generally held since with increases in both long and short positioning (longs +4,012, shorts +2,945), and with implications given the heavier momentum correlation here. IG clients have reached extreme sell for the first time since May, the oscillations prior shaking out trend-traders.
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.
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