Dow retreats slightly ahead of market-impacting CPI figures today

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There were a few items to digest in yesterday’s session with midterm election results uncertain but far from the anticipated red wave, risk appetite dented by the crypto selloff as Binance backed out of its initial plan to acquire FTX with the latter at risk of collapse, and the greenback bid in the FX market.

Economic data showed wholesale inventories for the month of September rose by a smaller-than-expected 0.6%, and weekly mortgage applications suffered a smaller -0.1% print.

Bond yields were in for a pullback across the board but in real terms enjoyed gains as breakevens dropped, market pricing for future Federal Reserve (Fed) rate hikes still majority 50bp for both December and February meetings. Central bank speak saw the Fed's Barkin saying supply-demand alignment may lead to a downturn, and Williams highlighting anchored inflation expectations.

CPI (Consumer Price Index) is the big one on offer today where expectations are the year-on-year figure will remain well above the central bank’s target but drop from 8.2% to 8%. Month-on-month expectations are for 0.6%, with its core which excludes food and energy forecast to rise by a smaller 0.5%.

Preliminary consumer sentiment and inflation expectations from UoM (University of Michigan) will be released tomorrow.

Dow Technical analysis, overview, strategies, and levels

We got a cross and close beneath its previous daily 1st Support level, and even if not triggering its S/L (stop-loss) still favoured contrarian sell-breakout strategies.

The upper end of its long-term bear trend channel managed to hold, and if it continues to do so with a move to the lower end will swiftly undo the daily's stalling bull trend technical overview that's in contrast with the weekly's bear average. It’s rare to get contrasting technical overviews for this long between daily and weekly time frames and this has been due to the wide long-term bear channel.

Dow 30 component performance by the close showed all in the red save for Merck, losses largest for Disney (following earnings prior) suffering double-digit percentage declines but otherwise Chevron (falling energy prices) and Dow in the bottom.

IG client* and CoT** sentiment for the Dow

Retail trader bias is still majority to the sell side but has dropped considerably since yesterday from a heavy sell at 72% to more moderate short territory at 62%.

The institutional sentiment is from last Friday’s CoT report where they were majority short as of last week, there to pulling back from a previous heavier 65%.

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.