Dow in slight retreat following US Non-Farm Payrolls disappointment

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With a US central bank that’s data dependent and where there’s still room for progress on the employment front with voting members of the Federal Reserve (Fed) eying ongoing strength in job figures, it meant that last Friday’s Non-Farm Payrolls figure was a closely watched event, with expectations going into it for a 750,000 increase for the month of August with a scare prior out of ADP whose reading was about half of that at 374,000.

The net result was a serious 235,000 miss (even combined with July and June revisions taking it further to the still low 369,000), and the financial market reaction was a weaker dollar and key indices mixed. Other labor data included the unemployment rate dropping to 5.2%, wage growth strong and above estimates at 0.6% and year-on-year also a clear beat at 4.3% (though that may drop if future employment incorporates low-wage jobs), and the employment-population ratio slightly higher at 58.5% (enhanced unemployment benefits ending over the weekend, hopes are that future jobs readings will improve).

It wasn’t the only impacting data on offer late last week - services PMI out of ISM showing growth but where it dropped from its previous reading.

As for the week ahead, while economic data out of the US is less impacting than last week, there’s still Producer Price Index (PPI) figures ahead of next week’s Consumer Price Index (and this with stagflationary fears of higher prices but lagging on growth emerging), the usual unemployment claims, and oil inventory data pushed a day forward due to today’s holiday that’s expected to keep trading activity a bit sedate.

Dow Technical analysis, overview, strategies, and levels

Lack of a play for wWall Street on the weekly time frame after what has been very rangebound movement, well within weekly levels and only briefly going past its daily first resistance level last Friday (where the technical overview in that time frame is showing increasing signs of a breakout), the technical overview here a heavily stalling bull trend but where on a significant breakout contrarian sell strategies can't be ruled out, even if a reversal strategy might still be in play.

salesforce.com Inc and Home Depot Inc (All Sessions) were amongst the minority of the Dow’s components outperforming, while the underperformers were American Express Co (All Sessions) and Boeing Co (All Sessions) (and this prior to weekend report from WSJ on likely delay of new 787 Dreamliners).

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IG client* and CoT** sentiment for the Dow

Retail bias starts off this week in heavy sell territory at 67%, lower than the start of last week’s 71%, with any further oscillations with downside bias giving a chance for older shorts to unwind.

CoT speculators remain a slight sell 51% in the Dow with shorts up by 651 lots and longs rising by 76 lots, and for the remaining US indices it’s slight buy US 500 52%, slight sell US Tech 100 at 51%, and heavy sell Russell at 70%.

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.