Dow futures edge higher following Friday’s surge

There was plenty of economic data coming from the US late last week and most of it was mixed.

Retail sales for June bested estimates rising 1% m/m (not adjusted for inflation which was higher) and by the same amount when excluding autos, preliminary consumer sentiment out of UoM (University of Michigan) improved from 50 to 51.1. Despite this, it is still at worrying levels and where there was an improvement in inflation expectations with a drop to 2.8% from 3.1% for the five-year horizon and twelve months from 5.3% to 5.2%.

Thursday’s PPI (Producer Price Index) readings were hotter than expected with y/y at 11.3% and m/m 1.1% and its core 8.2% and 0.4% respectively with the latter figures slowing from previous readings suggesting it has peaked when excluding food and energy. Import price growth is slowing to 0.2% m/m and y/y at 10.7% thanks in part to a stronger dollar. Unemployment claims suffered its sixth consecutive miss and averaged higher as of late with a 244K reading. Industrial production contracted 0.2% opposite expectations of growth, and business inventories rose 1.4%.

Central bank speak included Waller who is for a 75bp increase but could go for larger depending on retail sales and housing data should it show 'demand is still really strong and robust' though 'markets may have gotten a little bit ahead of themselves'.

For the stock market, Friday’s session was the notable, undoing most of the losses earlier in the week as 100bp rate hike expectations dropped out of majority pricing, with financials leading following Citi’s results that beat estimates. Over in the bond market, yields were in for a drop most notable on the further end of the curve that is still positive in real terms but with key spreads inverted, and market pricing of Federal Reserve (Fed) rate hikes show minority pricing a 100bp increase for next week’s meeting, roughly a coin toss between 50 and 75bp for September, and somewhat mixed pricing for smaller 25bp hikes thereafter.

As for the week ahead, US economic data is relatively sedate compared to the impacting items on offer last week but housing demand is being noted and starts off with NAHB’s housing market index tonight, both building permits and housing starts tomorrow, and existing home sales and the weekly MBA mortgage applications the day after.

The other items that are noteworthy include preliminary manufacturing and services PMIs at the end of the week, S&P’s readings expected to show ongoing but weaker expansion. As for earnings, of America and (Dow 30 component) Goldman Sachs today, Netflix and (component) J&J tomorrow, and Tesla on Wednesday.

Dow Technical analysis, overview, strategies, and levels

It was down to Friday's boost that undid nearly all the losses suffered since the start of last week. Thursday's low beneath its previous 1st Support level's S/L (stop loss) offered some for conformist sell-breakouts as contrarian buys got stopped out on the initial move lower. The overview was more conflicting on the shorter-term time frame where it’s a bear average while stalling here needing little to shift to match it.

UnitedHealth (beating forecasts, raising full-year outlook), American Express, and JPMorgan (though still slightly down on the week after its earnings and revenue miss, building loan loss reserves and suspending share buybacks) outperformed amongst its components in a session where all save a few finished in the green. In terms of components releasing next, we've got Goldman Sachs and IBM today.

IG client* and CoT** sentiment for the Dow

Retail trader bias has been majority buy amongst the six indices (Dow 30, S&P 500, Nasdaq 100, FTSE 100, DAX 40, ASX 200) for quite some time, but we’ve got a shift here from slight buy 53% at the start of last week to start this week off in majority short territory at 56%.

As for CoT speculators, still heavy sell amongst them but dropping significantly from 76% to 71% on an increase in longs by 1,310 lots and a simultaneous drop in shorts by 309. They remain majority short Russell 2000 (80%) and S&P 500 (66%) while majority buy Nasdaq 100 (57%).

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 today morning 8am for the outer circle. Inner circle is from the previous trading day.
**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.