Dow starts off the month in the green but key concerns persist

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Key indices finished the month in the red with the focus on rising bond yields, inflationary pressures with shortages, and fears of lowered growth on energy woes, October starting off in the green. The US government avoided a shutdown only hours before the deadline though it’s only until December 3^rd, and a more pressing matter in the weeks ahead with the debt ceiling deadline of around October 18 with another vote potentially expected in the Senate this week after two failed attempts, the $1 trillion infrastructure vote delayed and the $3.5 trillion package likely to be much lower.

Economic data late last week out of the US showed core PCE price index hit a fresh 30-year high and was above estimates at 3.6% year-on-year, personal income rising 0.2% for the month though factoring inflation implied falling real income, manufacturing PMI out of ISM a beat with ongoing expansion and prices rising, vehicle sales plummeting for September, UoM’s consumer sentiment following CB earlier in the week slightly higher, and final GDP for the second quarter annualized a notch above estimates at 6.7%.

As for the coronavirus, cases above 235 million, deaths crossing 4.8 million (Reuters tally crossing 5 million), and in vaccine news Merck’s oral antiviral medicine sending its share price surging while sending that of vaccine makers into the red, BioNTech SE (All Sessions) and Moderna Inc hit hardest.

As for the week ahead, we’ve got the market-impacting US Non-Farm Payrolls (NFP), the last before next month’s Fed meeting (which occurs a couple days before we get October’s NFP figures in November) and at a time when worries over growth, supply chain shortages, and what has been tested consumer confidence.

Expectations are for a roughly half a million increase which ought to be ‘decent’ enough for the Fed to begin unwinding purchases at its November meeting, the unemployment rate to drop to 5.1%, and for wage growth to expand at a slower monthly pace. Leading up to it are the usual Thursday unemployment claims which last week was a clear miss attributed largely in part to California refiling, and Wednesday’s ADP estimate.

And when it comes to PMIs, services are expected to be released on Tuesday for most with expectations for ongoing growth that’s more subdued following preliminary misses, Australia’s on Thursday and China’s Caixin reading on Friday after the latter’s surprise contraction last time around. Oil - US Crude is likely to take plenty of attention today with the OPEC+ meeting of ministers and JMMC, at a time when the energy crisis is sending energy commodity prices higher, and thereafter it’s the usual weekly oil data releases with API tomorrow night, EIA on Wednesday after last week’s surprise surplus, and rig count data out of Baker Hughes Company on Friday.

Fiscal updates out of the US will be noted, and its trade chief is expected to speak today regarding China’s failure regarding the trade deal, this following weekend tensions between China and Taiwan, and on the Chinese domestic front the suspension of trading Evergrande shares.

Dow technical analysis, overview, strategies, and levels

From a strategic standpoint, both weekly and daily levels couldn't hold last week, and that meant net it was breakout strategies that outperformed for both time frames where it's 'consolidation - volatile' on the daily and has shifted on the weekly even as a few technical boxes still remain neutral.

Retailers were in the red due to non-component Bed Bath & Beyond Inc on its supply chain complications and decline in August traffic taking other retail stocks down with it and meaning components’ Walgreens Boots Alliance and Walmart suffered. Component Merck & Co Inc (All Sessions) was on top following its drug announcement, travel-related also outperforming. We've got factory orders today in terms of US data, though overall market attention is on supply chain woes, energy, the debt ceiling and fiscal packages, global growth risks, and where yields will settle.

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IG client* and CoT** sentiment for the Dow

Commitment of Traders (CoT) speculators remain majority short but have dropped from 63% to 56% with longs up by 2,449 lots, shorts dropping 2,110 lots. For the other US indices, they are heavy sell US Russell 2000 at 67%, shifted from buy to slight sell US Tech 100 at 51%, and majority buy US 500 at 55%.

Retail traders in Wall Street have shifted since the start of last week from what was majority short 56% to a now slight buy 51%. They are majority long all six indices (Dow, S&P, Nasdaq, Germany 40, FTSE 100, and Australia 200).

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.}