Dow 30: Inauguration day and the flurry of executive actions

Strong week for equities, lighter pricing data, and stronger earnings

Key US equity indices enjoyed decent weekly gains with the S&P 500 up 3.2% to close at 5,996, the Dow reaching 43,487, and an outperforming finish for the tech-heavy Nasdaq 100. It was a week that included pricing data lighter than anticipated a plus in the current above-target inflationary environment, and helped yields retrace off this month’s highs. Strong earnings from the financial heavyweights beating on key metrics no doubt helped in terms of giving the season an energetic kickoff.

And economic data generally remained strong even when there was a miss as seen last Thursday with retail sales up 0.4% m/m (month-on-month). US building permits in December were down 0.7% but beat estimates with a 1.48m print, while housing starts jumped 15.8% to almost 1.5m well above forecasts. Industrial production for the same month rose 0.9% m/m also above expectations, with capacity utilization reaching 77.6%. GDP (Gross Domestic Product) estimates for the fourth quarter remain strong at 3% out of the Atlanta Fed, and 2.39% for the St. Louis Fed.

Stock market closed with the attention on the inauguration

And while this would normally be a light start to the week with both stock and bond markets closed in observance of MLK Day, the attention will be fixated on inauguration day as President-elect Trump once sworn in expected to move with “historic speed and strength” signing well over a hundred executive actions.

Those looking for US data will have to wait towards the end of this week for any real impact from it, but until then plenty of earnings to digest and from a more diversified bunch including Johnson & Johnson and Procter & Gamble (both components of the Dow 30).

Dow Technical analysis, overview, strategies, and levels

There’s notable positive bias when it comes to the Dow 30’s technical overviews in both daily and weekly time frames, the latter shifting to ‘cautious consolidation’ upon the break beneath the lower end of its bull channel even if back in it after last week’s moves, with price still above its main long-term weekly moving averages (MA) but combined with a non-trending ADX (Average Directional Movement Index) and neutral on the DMI (Directional Movement Index) front. It’s the daily time frame that’s been a bit trickier, an ADX by one reading still in trending territory, its DMI not far off from being positive due to the +DI gap over the -DI, and price above all its main short-term MA’s and about to get above the last of its main long-term ones.

With what’s on offer this week in terms of executive actions and more earnings means added caution when going opposite key levels be it on the daily or weekly time frame, doing so ideally only after a significant reversal waiting for the 1^st levels to break/breach and only if reveres going with it for a move back to the Relative Starting Point. And with what’s on offer don’t expect contrarians to sit quietly, as they’re armed with breakout strategies off both 1^st Support and Resistance levels for a move higher (and potentially to the 2^nd levels) in the event of an uptick in volatility or fundamental repositioning.

IG client* and CoT** sentiment for the Dow

In terms of sentiment among IG clients, there’s been a shift among them from the middle at the start of last week to a majority short 56% at the start of this one as price gains enticed longs into closing out and shorts into initiating.

As for CoT speculators, they’re still net long but have reduced it from 55% to a slight buy 53% on a drop in longs (by 1,043) and a small increase in shorts (by 270), with a similar theme playing out for large traders in the Nasdaq 100 taking the net long bias there down to just 54%.

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.