Dow oscillates near the highs ahead of a big week of earnings

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Record highs for a couple key US indices – including Wall Street – and a slight positive finish for others gave the impression there was less to worry about, even if in the background the usual fears failed to subside, markets majority pricing in a rate hike for June of next year, the ten-year break even out of the US rising to fresh highs.

In central bank speak the US Federal Reserve’s Powell said, “I do think it’s time to taper; I don’t think it’s time to raise rates”.

As for US economic data, existing home sales rose, Markit’s preliminary PMIs (Purchasing Managers Index) both were in expansionary territory, unemployment claims dropped to a fresh pandemic low, the budget deficit for September slightly above estimates but at its lowest reading since the start of the pandemic (fiscal 2021 deficit $2.8 trillion, down on previous year’s record). On the fiscal policy front Democrats hoping to agree on a smaller but still significant $2 trillion or less framework with the House speaker saying “more than 90% of everything is agreed and written”.

As for the week ahead, economic data will get more impacting as the week progresses with advance GDP (Gross Domestic Product) out of the US on Thursday and the closely watched core PCE (Personal Consumption Expenditure) price index on Friday, with housing price data tomorrow and pending home sales on Thursday. And then of course, earnings from Big Tech, and a whole lot more representing nearly half of the US 500 value.

Dow technical analysis, overview, strategies, and levels

Although we saw fresh record highs for this index, the climb last week was limited and within weekly levels, failing to offer much on the daily beyond its first resistance level in what is similar to the previous (heavily stalling) bull trend that fails to offer significant follow-through beyond key levels to the upside, unless its preceded by a significant volatile downside move, prices near a key resistance level visible on the weekly chart.

Component performance showed American Express Co (All Sessions) outperform by Friday's close by a healthy margin (easily beating earnings estimates, record card member spending), Intel on the other end suffering double-digit percentage losses (on lower profit margins predicted over next few years due to ongoing investments in new technology). Honeywell International Inc also in the bottom following its earnings that beat estimates but was a slight miss on revenue, it too struggling from supply chain woes.

IG client* and CoT** sentiment for the Dow

When it comes to sentiment, retail bias is now in extreme sell territory at 78% at the start of this week from a heavy sell 71% at the start of last week. They are majority short the remaining six indices (US 500, US Tech 100, FTSE 100, Germany 40, and Australia 200).

For larger speculators according to the latest CoT (Commitment of Traders) report, it has shifted from slight sell to slight buy, longs up 3,961 lots outdoing a tiny increase in shorts of only 4 lots. CoT for the remaining US indices is majority buy S&P 55%, slight sell Nasdaq 51%, and heavy short Russell 67%.

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.}