Dow: Struggles for gains as tech-heavy indices outperform

Softer US labor data, yields pull back, and an outperforming week for tech

US labor data released last Friday out of the Bureau of Labor Statistics showed Non-Farm Payrolls for the month of June best forecasts up 206K from roughly 190K forecasts, but government hiring was responsible for a chunk of that, suffered 111K of lower revisions for May and June, and smaller increases in the household survey failing to keep up with supply taking the unemployment rate to 4.1%. Wage growth was as expected up 0.3% month-on-month (m/m) and year-on-year (y/y) at 3.9%.

Key US large-cap equity indices finished the first week of the quarter with gains and clear outperformance for tech as the Nasdaq 100 bested both S&P 500 and especially the Dow, while both small-cap Russell 2000 and S&P MidCap 400 took on losses.

As for Treasury yields, they finished the week lower and were in for a pullback last Friday following the softer labor data, the 10-year moving away from intraweek highs that nearly reached 4.5%, and real yields averaging 15 basis points lower. Market pricing (CME’s FedWatch) has improved in terms of a healthier majority on the first rate cut in September out of the US Federal Reserve (Fed) and for a second in December.

Week Ahead: CPI, Chairman Powell’s testimony, and earnings from the financial heavyweights

As for the week ahead, the big one out of the US in terms of data is this Thursday’s Consumer Price Index (CPI) readings for the month of June. Expectations are we’ll see y/y headline growth drop from 3.3% to 3.1%, its core (which excludes food and energy) holding at 3.4%, and for ongoing contained m/m growth for both at 0.1% and 0.2%, respectively (‘Nowcasts’ at 3.12, 3.52, 0.07, 0.28). Producer Price Index (PPI) will release the day after where both headline and core are forecast to remain in the 2% handle. Following it are the preliminary readings out of UoM (University of Michigan) for consumer inflation expectations, both 12-month and five-year figures at 3% for the month of June.

Otherwise, it’s relatively lower-impacting data noting what have been tested consumer credit change readings, relatively weak small business optimism prints out of NFIB for about a couple of years now, and the weekly claims averaging higher. For the bond market, plenty of Treasury auctions with the notable 10-year on Wednesday and the 30-year on Thursday, and plenty of FOMC (Federal Open Market Committee) members speaking chief among them Chairman Powell’s testimony tomorrow and the day after.

In energy, there are the usual weekly items out of API tomorrow, EIA the day after and Baker Hughes on Friday, but add to it the monthly releases out of EIA on Tuesday with its Short-Term Energy Outlook, OPEC’s Monthly Oil Market Report on Wednesday, and the expected ongoing sizable difference on world demand growth forecasts between it and IEA’s monthly Oil Market Report on Thursday. And then there’s earnings, focusing on a few key heavyweights this Friday with (Dow 30 component) JPMorgan Chase, Citigroup, and Wells Fargo.

Dow Technical analysis, overview, strategies, and levels

It’s been a struggle getting price gains in this index, and more so when comparing it to the fresh record highs in both S&P 500 and Nasdaq 100. That being said, the technical overview on the weekly time frame remains ‘bull average’ where there’s added caution buying on dips and done so only after a significant reversal for those going conformist.

Price is above all its main weekly moving averages with little needing to tilt another technical box into the green camp, but otherwise most of its key indicators are neutral following mostly oscillatory moves. As for the daily time frame, the technical overview for those working off shorter-term levels is ‘cautious consolidation’, meaning selling the daily 1^st Resistance/buying the 1^st Support only after a significant reversal for conformists and going for breakouts off daily 1^st levels if you’re a contrarian.

IG client* and CoT** sentiment for the Dow

The CoT report has been delayed and will release later today, and in turn institutional sentiment figures will be updated in tomorrow’s Daily Market Report. Looking at the most recent release and there was a shift in bias among them to slight sell 51%, and in net short territory for the first time since November of last year.

IG clients raised their sell bias over the past week taking it into heavy short territory, but where it has generally been a story of range-trading these levels given the lack of proper price gains compared to indices like the Nasdaq 100 and S&P 500.

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 the start of this week for the outer circle. Inner circle is from the start of last week.
**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.