Dow futures slightly lower ahead of a week with impacting items

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There was little to go on in terms of impacting economic data late last week. Unemployment claims were at a multi-decade low, signifying the ongoing strength in the labor market; consumer credit more than doubled estimates with a near $42bn reading for February - pointing to depletion of savings due to inflation.

Key indices for the stock market finished out the week under pressure and more so for tech. The VIX changed little, hovering above its long-term average while the MOVE remained at elevated levels; the difference between the two is still at a somewhat high and worrying level even if it is below the financial crisis and pandemic highs.

The bond market yields finished the week higher and the 20-year joined the 30-year in positive territory and yield spreads improved from recent lows as the further end enjoyed a bigger boost.

As for how the market expect the US Federal Reserve to react in its future meetings, they are majority pricing a 50 basis point hike for their meeting in early May, the majority pricing another 50bp rise in June, and again (by a smaller margin) for July.

Regarding stock market worries, it hasn’t just been about rate hikes but about unwinding balance sheets. Last week’s Brainard comments that shrinking was occurring 'more rapidly,' putting a ceiling on the upside movement. There is also an ongoing matter on the geopolitical front. With no signs of a resolution, further sanctions continue to disrupt current and future energy flow resulting in a potential future food crisis with the FAO’s food price index at a record high for March showing a 13% increase.

As for the week ahead, we’ve got more impacting items on offer with the central bank's members to speak about their take on inflation. Tomorrow’s Consumer Price Index (CPI) estimates point to year-on-year growth of 8.3% with its core of 6.6%, and for month-on-month of 1.2% and 0.5% respectively.

On Thursday, retail sales are followed by preliminary consumer sentiment out of UoM. The UoM has remained near worrying levels as items considered smaller in terms of market impact will occur on Friday when plenty of markets are closed.

Last but most certainly not least, earnings kick off with the big financial giants: (component) JPMorgan Chase and BlackRock Inc on Wednesday, and Citigroup Inc (All Sessions), (component) Goldman Sachs Group Inc (All Sessions), Morgan Stanley, and Wells Fargo & Co (All Sessions) on Thursday.

Dow technical analysis, overview, strategies, and levels

Prices got close to last week's weekly 1st Support level but failed to offer a play for conformist breakouts, and were somewhat shy for contrarian fade strategies. While the daily movement late last week gave contrarian sell-on-reversal strategies the edge on Thursday's 1st Resistance level holding, it had to wait until Friday in what has been a drop in intraday volatility.

Home Depot Inc (All Sessions), Goldman Sachs Group Inc (All Sessions), andJPMorgan Chase & Co (All Sessions) outperformed amongst its components, the minority finishing in the red on Friday, led by Boeing Co (All Sessions) and Microsoft Corp (All Sessions).

IG client* and CoT** sentiment for the Dow

As for retail trader bias, it has shifted from what was a majority short bias at the start of last week to a majority buy 58% as of this morning. Amongst the remaining six indices (from IG’s Weekly Market Report), they are majority buy in the S&P, Nasdaq and DAX, while majority short FTSE and ASX.

CoT speculators have dropped out of extreme short territory with longs rising by 1,178 lots outdoing a 330 lot increase in shorts, though still heavy at 73%. They also remain majority short in the S&P, Nasdaq, and Russell 2000.

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.