Dow price gains undo a few weeks of losses

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Significant data was on offer late last week out of the US. It showed preliminary GDP (Gross Domestic Product) a notch below a -1.4% advance. The GDP estimates before delivering a -1.5% reading, the price index for the first quarter was 8%, in the advance release a notch higher at 8.1% in last Thursday’s. As for more notable PCE (Personal Consumption Expenditure) pricing data, it remained hot but slowed, with the core PCE price index registering a y/y increase of 4.9% while m/m 0.3%, overall readings that include rising food and energy prices showing gains of 6.3% and 0.2% respectively.

Spending in real terms remained strong though required a dip into savings with the latter’s rate at its lowest since 2008, and based on previous data, the former was fueled by higher debt levels. Overall, any data that showed consumption remained strong and pricing pressures slowing combined with better earnings from discount retailers helped power indices higher to avoid a consecutive red weekly finish.

Elsewhere, pending home sales contracted 3.9% m/m as data out of the housing sector continued to show struggles. Trade data where the deficit narrowed to a still large -$105.9bn, preliminary wholesale inventories rose 2.1%, and UoM’s consumer sentiment reading revised to an even more worrying 58.4.

Over in the bond market, US yields finished the week retracing further off the highs and in real terms taking the seven-year back into negative territory. Breakeven inflation rates were at controlled levels with the five-year still below 3% and the ten-year slightly above 2.6%. Market pricing for 50bps rate hikes out of the US central bank is still largely a done deal for June and July, with September onwards by smaller amounts and potentially a pause if inflation manages to cool a bit.

As for the week ahead, there are plenty of items on offer across the globe with the potential to influence different asset classes. Aside from the usual weekly oil inventory data out of API (American Petroleum Institute) and EIA (Energy Information Administration) that’ll be pushed one day forward to Wednesday and Thursday respectively due to today’s US holiday, there’s the OPEC+ meet, even if oil traders aren’t bracing for a change inconsistent output increases.

Both manufacturing and services data will be released later this week with preliminary PMIs disappointing last week, albeit still in expansionary territory. Given the first Friday of the month is this week, it means there’s no avoiding US Non-Farm Payrolls. With expectations, we’ll see a smaller 325K reading for May following hiring freezes and layoff announcements from more companies as of late.

The unemployment rate is expected to drop to 3.5%, and m/m wage growth to rise by 0.4%. It’ll be preceded by the usual suspects with ADP’s estimate pushed a day forward due to the holiday and so too job openings, and Thursday’s weekly unemployment claims which last time around finally managed to best estimates. Earnings out of the US are lighter this week, though there’s (Dow 30 component) Salesforce tomorrow, and (non-component) meme stock GameStop the day after.

Dow Technical analysis, overview, strategies, and levels

The moves at the end of last week took prices well above their bear trend channel and caused a positive DMI (Directional Movement Index) cross on the daily time frame. It shifted a couple of technical boxes to neutral in this time frame while turning a couple of green on the daily time frame. In all, contrarian buy-breakout strategies won out eventually in both time frames, and the overview here is struggling heavily with a classification more difficult to hold with any further price gains (and weekly overview shifts occur more rarely than the daily).

IG client* and CoT** sentiment for the Dow

Dow Chart with retail and institutional sentiment

In sentiment, CoT speculators raised longs in the Dow 30 by 402 lots and shorts by 694 though this was not enough to shift the heavy sell bias from 72%. For other key US indices,they are a majority short Russell 2000 (73%) while buy S&P 500 (54%) and Nasdaq 100 (55%). As for retail traders here, what was heavy buy at 74% at the start of last week has shifted to majority short 55% at the start of this week.

*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.