Dow short-term technicals turn bullish post pricing data

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US pricing data late last week showed PPI (Producer Price Index) readings carry the theme that the worst in price increases might have passed, with a m/m (month-on-month) -0.5% reading that was opposite expectations of growth and the y/y (year-on-year) reading pulled down from 11.3% to 9.8%. Its core excludes food and energy, both up a smaller 0.2% m/m and for a y/y figure that’s dropped from 8.2% to 7.6% with the latter as expected. Import prices were also in for a decline, m/m -1.4% for the same month but are still up sizably y/y even after slowing from 10.7% to 8.8%, while export prices were down a larger 3.3% m/m.

As for the US consumer, preliminary inflation expectations out of UoM (University of Michigan) showed the twelve-month horizon drop from 5.2% to 5% while over the longer-term a notch higher at 3% from 2.9% in its prior reading. With its consumer sentiment reading still near worrying lows at 55.1 but besting estimates and improving from 51.5, with current conditions dropping from 58.1 to 55.5 but a notable improvement in consumer expectations jumping significantly from 47.3 to 54.9.

The stock market continued its gains post Wednesday's inflation report, while the bond market saw yields finishing out the week little changed and in real terms slightly higher, breakeven inflation rates in for an unnoticeable pullback.

The Federal Reserve’s (Fed) September meet still has plenty of data to contend with between now and then, market pricing roughly a coin toss between a 50bp (basis point) and 75bp hike, a peak rate little, even if Fed speak was more cautious: the latest San Francisco’s Daly not ruling out another consecutive 75bp increase even if 50bp is her “baseline”, and Baskin on “more to come” to get rates into “restrictive territory” and “moving real rates into positive territory across the curve” and keeping it there.

Other notable items include the VIX dropping beneath 20 for the first time since April, the MOVE beneath 110, and the Atlanta Fed’s GDPNow for this quarter at 2.5% as we hit the midpoint.

As for the week ahead, there’s minutes from the US central bank released this Wednesday and preceded by retail sales expected to enjoy only modest growth.

Expect the housing sector to get a bit more attention, and not just due to economic releases like building permits, housing starts, existing home sales, and the usual weekly mortgage applications, but also due to earnings from retail home improvement giants with Home Depot releasing tomorrow and Lowe’s the day after.

Dow Technical analysis, overview, strategies, and levels

It might not have been a clean move past its previous weekly 1st Resistance level but it eventually closed above it with similar offerings for both conformist and contrarian strategies in this time frame where the overview is that of averaging back. The shorter-term daily a stalling bull trend with Thursday's 1st Resistance level initially holding aiding contrarian sell-on-reversals as conformist buy-breakouts struggled before Friday's follow-through took it to a recent fresh high. Disney, Merck, and Apple outperformed amongst its components by the close where only Johnson & Johnson finished in the red.

IG client* and CoT** sentiment for the Dow

Retail trader bias is still majority short but has risen into heavy sell territory following last week’s price gains which means they start at 71% this time around.

As for CoT speculators, a rise in longs by 1,923 lots and a simultaneous drop in shorts by 923 has taken it out of heavy sell territory from 68% to 62% (CoT report released Friday but positions are as of last Tuesday and hence pre-CPI release positioning). For the other key US indices, they are majority short Russell (83%) and S&P (67%), while majority buy Nasdaq (58%).

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.