Dow institutional bias pushes into extreme bear territory

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Items that impacted both mandates of the US Federal Reserve were on offer late last week. For the month of March, Non-Farm Payrolls has a 431K reading that missed 485K estimates but with upward revisions for both January and February, the unemployment rate dropped to 3.6%. The monthly wage growth was as expected at 0.4%, the employment-population ratio rising above 60% for the first time since the start of the pandemic (it was 61.2% in February 2020).

The jobs market remained strong with data released prior in the week showing job openings above 11m, and meant central bank leeway in targeting rising inflation. Pricing data last Thursday showing PCE (Personal Consumption Expenditures) price index 0.6% m/m (month-on-month) and 6.4% y/y (year-on-year) compared to 6.7% expectations for the latter, its closely watched core rising 0.4% m/m and 5.4% y/y.

Other economic data included manufacturing out of ISM and Markit with the former below estimates though still expansionary at 57.1, and personal income and spending growing (though not in real terms) 0.5% and 0.2% respectively.

For the financial markets, bond yield inversions took the attention with US yields finishing the week higher on the front end while lower on the further end. All negative in real terms adjusted for inflation with the 10Y against the 7Y, 5Y, 3Y, and closely watched 2Y all in negative territory (so too the 30Y – 2Y).

When it came to market pricing of future rate hikes out of the Federal Reserve (Fed) stuck with a majority pricing of 50 basis points each for May and June (and on edge for July), and majority for a year-end target of 2.5-2.75%.

As for the stock market, it was unfazed by the bond market warnings with most key US indices enjoying another week of gains that have shaken short and long-term technical overviews. The VIX ended the week lower while the MOVE struggled to come off recent highs.

When it comes to the economic calendar in the week ahead, it’s relatively quieter in comparison with minutes from the Federal Open Market Committee’s latest meeting. For any additional insight with regards to its balance sheet unwinding, Fed member Williams last week said it could be a possibility in May.

Dow Technical analysis, overview, strategies, and levels

Prices finished the week not far off from where they started for the Dow.

Underperforming compared to the Nasdaq and S&P, and in the process failing to trigger conformist/contrarian strategies. That meant a lack of a play in this longer-term time frame, while last Thursday's plummet aided conformist sell-breakouts on a break in its previous daily 1st Support but where it needed further follow-through on Friday to give it a clearer edge on contrarian buy-on-reversal strategies.

The technical overview for this time frame is a heavily stalling bear trend needing very little to shift. The daily still 'consolidation - volatile' with all its technical boxes neutral and a negative DMI (Directional Movement Index) cross occurring there (though of less reliability given the close DI- to DI+ proximity).

Component performance in Friday's session put Verizon, Visa and Merck on top, a minority in the red whereby Intel and Walgreens suffered most.

IG client* and CoT** sentiment for the Dow

When it comes to CoT speculators, they’ve raised shorts by 750 lots and reduced longs simultaneously by 1,540 lots. The net result pushed majority short bias into extreme sell territory at 78%. For the remaining US indices, they have shifted to majority short in the Nasdaq at 55%, remaining slight sell S&P 500 at 54%, and heavy sell Russell at 68%.

Retail traders started off the week in slight sell territory at 53%, down from 63% at the start of last week, and amongst the six indices they are either in the middle (S&P, Nasdaq, and DAX) or majority sell (Dow and ASX).

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.