Dow shrugs off NFP miss to finish the week higher

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Friday’s Non-Farm Payrolls (NFP) reading came in at 194,000, its slowest growth since February and its second consecutive miss, failing to live up to expectations of 490,000 attributed to a decline in the number of government payrolls, the unemployment rate dropping to 4.8% and below expectations of 5.1% though due to more leaving the labor force, wage growth continuing to rise at 0.6% month-on-month (its previous revised lower to 0.4%), and the employment-to-population ratio rising to 58.7%.

But combined with a higher revision for August, and financial market reaction treated it as 'decent' enough for the US Federal Reserve (Fed) to begin tapering at its next meeting in November, key indices finishing the week in the green and yields moving higher.

Stagflation fears and the energy crisis failed to subside, spreading instead to potentially engulf more areas in a clear test for energy intensive sectors. On the fiscal front, the debt ceiling limit was raised in the Senate albeit lasting until December (when they’ll need to avert a government shutdown as well), the Senate Republican leader saying he won’t aid Democrats again in raising the debt limit with enough time via reconciliation, the House to vote on the measure tomorrow.

As for Covid-19, cases globally nearing 240 million, deaths within the 4.8 million handle, both in the US continuing to average lower.

As for the week ahead, it starts off very light and combined with a US holiday though the stock exchanges will be open, job openings from JOLTS on Tuesday followed by a ten-year auction where the bid-cover ratio has remained decent. The 30-year auction is on Wednesday, but it won’t be the most noted item as it’ll be preceded by the minutes from the latest FOMC meeting with traders and investors noting their recent hawkish tilt and combined with last Friday’s NFP reading, which in turn will be preceded by Consumer Price Index (CPI) readings for the month of September, expectations for ongoing 0.3% month-on-month growth.

But while CPI readings have remained well above the central bank’s target, it’s been hotter on the producer front, and means Thursday’s Producer Price Index (PPI) readings will also be noted, released at the same time as the weekly unemployment claims.

The holiday today means EIA’s (Energy Information Administration) inventory readings will be released on Thursday instead in what has been consecutive increases for oil, and that means API’s will be on offer Wednesday night instead of the usual Tuesday. Friday will mostly be about US data, with retail sales after its increase last time around expected to contract (though not at its core), UoM’s preliminary consumer sentiment reading that has improved but is still near recent lows and import prices that year-on-year was at 9% for September and will play a factor given a record trade deficit the US has been experiencing.

And then of course, there’s earnings, with financial giants on offer from Wednesday onwards, and will include components of this index.

Dow technical analysis, overview, strategies, and levels

As for Wall Street, a positive week and one where it outperformed compared to the US Tech 100, nearly undoing losses from the week before and settling next to its previous weekly first Resistance level by the close, lack of real outperformance for conformist and contrarian strategies, while zooming into the daily time frame and conformist breakout strategies clearly outperformed on the move past its previous daily first Resistance level on Thursday.

When looking at the weekly technical overview, strategies, and levels in the table below, the overview remains volatile in the sense that we’ve been getting moves (especially on the daily time frame) that have been breaking levels with ease, only for prices to eventually revert back.

That has given the initial benefit to conformist breakout strategies for limited profit-taking, with those daring to go contrarian enjoying gains when doing so after a significant reversal waiting for the levels to break/breach heavily before going opposite.

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IG client* and CoT** sentiment for the Dow

When it comes to IG client bias, they’ve shifted from a slight buy 51% at the start of last week to majority sell 59% thanks to the price gains. And when it comes to the remaining key indices from the report (US 500, US Tech 100, FTSE 100, Germany 40 and Australia 200), they are majority buy all of them, making this one the exception amongst retail traders.

CoT speculators remain majority short though have dropped their bias a notch to 55%, longs dropping by 197 lots while shorts down 950 lots. For the remaining US indices, they are heavy sell US Russell 2000 (67%), slight sell Nasdaq (51%), and majority long S&P (56%).

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.}