Dow 30 Trade: Seven consecutive losses before key events

Tech outperforms while the Dow struggles

US equity index futures are hardly changed after a week of gains for the tech-heavy Nasdaq 100 (+1% to 21,780). But it wasn’t gains for everyone as there were light weekly losses for the S&P 500 (-0.5% to 6,051) while more notable for the Dow (-1.8% to 43,828) suffering its seventh consecutive session of red finishes and hit harder in percentage terms the Russell 2000 (-3% to 2346). There’s been a notable w/w (week-on-week) climb in US Treasury yields for the middle to the end of the curve with the 10Y near 4.4% seen as a negative for equity valuations. In terms of economic data out of the US last Friday, it was another day of hotter pricing with both import and export prints above forecasts even if the y/y (year-on-year) readings are still relatively contained at 1.3% and 0.8%, respectively.

Preliminary PMIs, retail sales, FOMC, and PCE

Expect the focus to remain on fundamental items this week, starting off with preliminary manufacturing and services PMIs (Purchasing Managers’ Index) releasing later today and (for the US) expected to show worsening prints with the former still below 50 and the latter well above it. It’s expecting to stay interesting with retail sales tomorrow for the month of November where strong growth is expected, but its impact might not be as lasting if traders will be saving their financial firepower for the big one on Wednesday with the Federal Open Market Committee (FOMC) expected to cut rates by 25bp (basis points). At least that’s what market pricing (CME’s FedWatch) has nearly fully factored in. It won’t be just about the rate cut given it’s seen as a done deal, as there will be added focus on projections for next year and the revised dot plot to see whether rate cuts in 2025 will be less than what was originally penciled in back in their September forecasts.

Once that hurdle is cleared it’ll be back to the data, with final GDP (Gross Domestic Product) for Q3 releasing on Thursday showing growth of 2.8%, and then all eyes on Friday’s PCE (Personal Consumption Expenditures) price index to see if figures for the month of November will round down to 0.2% or up to 0.3% for both m/m (month-on-month) headline and core.

Dow Technical analysis, overview, strategies, and levels

We’re starting to see a better contrast in terms of underlying key technical indicators between the weekly and daily time frame, the former still strong with price above its key moving averages (MA), on the DMI (Directional Movement Index) front positive and an ADX (Average Directional Movement Index) still in trending territory. Zooming into the daily time frame is where the struggles begin, the seven consecutive losses doing its part in throwing a wrench into shorter-term technical indicators, price now beneath all its main short-term daily MA’s while still above its main long-term ones, not far off a negative DMI (its -DI is above the +DI unlike on the weekly time frame where the +DI is above the -DI), and an ADX no longer in trending territory.

The overview is ‘bull average’ in both but the daily has had to borrow off the weekly amidst the struggles, and where the wide bull channel is capable of tilting technicals on the daily making it at times more ‘consolidation – volatile’ where conformist strategies are breakouts and reversals are reserved for contrarians. Those anticipating the bulls to get back in it can rely on buy strategies for conformists but ideally only after a significant reversal if buying off the 1^st Support level waiting for price to break beneath it first by a decent margin and initiating on the way back up if it recovers. Those in the contrarian camp noting sell strategies that have outperformed at times but failed to get much follow through on the weekly have got sell-after-reversal strategies off the 1^st Resistance and a sell-breakout strategy off the 1^st Support.

IG client* and CoT** sentiment for the Dow

It’s a story of net long 63% bias when it comes to a few US equity indices and the Dow is no exception holding at that level on similar reductions in longs (by 2,049 lots) and shorts (by 1,670). The exception is the S&P 500 where they are net sell but have reduced it to 56%.

As for IG clients, it’s been a story of majority sell bias for months now, but the latest figure at just 51% means they’re on the verge of shifting should a price drop entice more shorts into closing out and longs into initiating.

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.