Dow manages to finish the week higher after volatility spike
Further tests remain on the fiscal front in the US as government shutdown deadline approaches, in sentiment speculators turning further bear in the Dow.
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Plenty of central bank decisions last week with the US Federal Reserve’s (Fed) decision to keep policy unchanged while forecasts for GDP for this year were revised lower while inflation was moved higher, the dot plot showing an even split for a 2022 rate hike, and a tapering of asset purchases potentially “as soon as the next meeting”.
On the liquidity front, it remained tested for China’s real estate group Evergrande Property Services Group Limited, its payment last Thursday on onshore bonds to avoid a cross-default while failing to pay its offshore where it has a 30-day grace period, with another one due this Wednesday, though central bank chiefs in the US and EZ are expecting it to be ‘China-centric’ in its impact and limited exposure.
US fiscal policy was also busy with the government shutdown deadline approaching (and thereafter that of the more important debt ceiling), the bill for both advancing in the House but where it faces an uncertain future in the Senate, the White House formally advising agencies to prepare for a shutdown.
As for the rest of the week ahead, we’ve got plenty of central bank speak that includes Chairman Powell speaking. That aside, durables tonight out of the US following last month’s slight contraction, with a string of items tomorrow that includes trade, more housing data after last week’s results for starts and permits that beat estimates, and CB’s consumer confidence.
It gets more impacting towards the end of the week, the usual Thursday unemployment claims, alongside it final Q2 GDP (Gross Domestic Product) figures, and on Friday the Fed (and in turn, the market’s) closely watched core PCE price index following 0.3% month-on-month growth for July and year-on-year at 4.2%, other consumer data released that includes income, spending, and UoM’s revised consumer sentiment reading. Preliminary manufacturing and services PMIs were a miss but still above 50 signifying expansion, final figures at the end of the week with US ISM the noteworthy one. And as mentioned previously, there’s this Wednesday’s Evergrande payment.
Dow technical analysis, overview, strategies, and levels
It's been a volatile week for key indices including the Dow, that started with Monday's plummet going past weekly support levels only to recover and keep the technical overview unchanged in this time frame, though in the process widening DI- over DI+ in both time frames.
Conformist breakout strategies on the daily outperformed and prices consolidated interday back up, a theme that has aided the buy-the-dip mentality that should it eventually fail would be a devastating setback for investors. NIKE Inc (All Sessions) (lower sales forecast, supply chain woes, slowing growth in China) was the component suffering in the very bottom, salesforce.com Inc and financials amongst those in the green by Friday's close.
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| Current technical overview | Consolidation |
| Technical overview conformist strategy | Sell first resistance after reversal, buy first support after reversal |
| Technical overview contrarian strategy | Buy first resistance upon breakout from below, sell first support upon breakout from above |
| S/L for second resistance | 36002 |
| Second resistance | 35761 |
| S/L for first resistance | 35521 |
| First resistance | 35280 |
| Relative starting point | 34799 |
| First support | 34318 |
| S/L for first support | 34077 |
| Second support | 33837 |
| S/L for second support | 33596 |
IG client* and CoT** sentiment for the Dow
In sentiment, CoT speculator bias has turned further bearish, longs dropping by 3,713 lots outdoing a 1,264-lot reduction in shorts and taking it from majority short 58% closer to heavier sell levels at 63%. For the other US indices in the report, they’re slight buy US Tech 100 and US 500 at 54%, heavy sell US Russell 2000 at 71%.
On the retail trader front, it has shifted from majority long 58% at the start of last week to a near exact opposite majority short 56% at the start of this week.
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.
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