Dow 30 Trade: Underperforms and falls back beneath 45K

Record highs for the S&P 500 and Nasdaq while Dow misses out

US equity index futures little changed after a week that saw record highs for the S&P 500 (not far off 6,100) and Nasdaq 100 (over 21,600) while the Dow struggled as it closed beneath 45K with component UnitedHealth the notable drag down w/w (week-on-week) over 10%. The attention last Friday was on the important jobs data, and US Non-Farm Payrolls in November was better than anticipated showing 227K growth vs 218K expectations and higher revisions for previous months. But that was the establishment survey as contraction for its household counterpart meant a rise in the unemployment rate to 4.2%, in all rate cut likelihoods (CME’s FedWatch) for a 25bp (basis point) cut out of next week’s Federal Open Market Committee meeting firming up even if not fully priced in just yet.

The Federal Reserves (Fed) Daly said that the latest figures showed the labor market is in a good position, Goolsbee hopeful on getting rates “close to the range” of neutral in terms of the impact on the economy, Hammack believing that they “are at or near the point where it makes sense to slow the pace of rate reductions”, and Bowman continuing to “see greater risks to the price stability side of our mandate”. In terms of the Fed’s leadership, President-elect Trump said he has no plans to replace Fed Chairman Powell before his term expires.

As for today, mostly low-impacting items with the attention on pricing data later in the week starting with Wednesday’s CPI (Consumer Price Index) release.

Dow Technical analysis, overview, strategies, and levels

The technical overviews in both daily and weekly time frames remain ‘bull average’, but for the former (middle column in the table below) key technical indicators are starting to struggle a bit due to oscillatory moves prior. Price is no longer above all its main short-term moving averages but still above its main long-term ones, with an ADX (Average Directional Movement Index) by one reading just falling out of trending territory and on the DMI (Directional Movement Index) front the DI+ still above the DI- but the gap has narrowed, and an RSI (Relative Strength Index) no longer in overbought territory as was the case at the end of last month. They’re still very much bullish on the weekly time frame which factors more historic positive moves, but the large channel keeping traders nervous about whether any move will occur within it capable of tilting at-risk technical indicators.

A pullback this small off the highs won’t change the technical overview in either time frame meaning conformist strategies are still for a buy but ideally only after a significant reversal for those buying off the 1^st Support level (whether daily or weekly 1^st levels), and noting that buy-breakouts off the 1^st Resistance have generally needed patience on the weekly time frame to get the proper follow-through while have been tested on the daily time frame over the past two weeks. Those who are contrarians seeing this as the top for now can opt for sell strategies, but for the 1^st Resistance only after a reversal avoiding getting stopped out on any initial move (or continuity in its trend) higher and where sell-breakouts beneath the 1^st Support only on a more notable pullback to the lower end of the channel, else if anticipating oscillatory moves may not offer as much follow through.

IG client* and CoT** sentiment for the Dow

The pullback in price has given a chance for fresher shorts to close out among IG clients, the latest print still heavy sell but dropping to 69% in all partial relief and easing on the squeeze short traders felt as price moved higher.

CoT speculators remain an opposite majority buy but have fallen out of heavy long territory due to a larger increase in shorts (by 2,283 lots) over longs (by 1,287), though this isn’t the first time they’re less optimistic about price gains in the Dow only for the large-cap equity index to make another run higher.

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.