Dow struggles post-NFP with shifts in technicals and sentiment

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As is almost always the case with the Non-Farm Payrolls release, it took the attention last Friday with a reading for August that was 315K with lower revisions for July and June by over 100K. The household survey showed an increase but built on part-time positions as full-time jobs dropped. The unemployment rate rose unexpectedly a couple of notches to 3.7% (the underemployment rate from 6.7% in July to 7%) as the labour force participation rate increased from 62.1% to 62.4%, the employment-population ratio at 60.1%, and wage growth m/m (month-on-month) slightly below estimates at 0.3% while y/y (year-on-year) at 5.2%. Labor data released on Thursday showed unemployment claims at a better 232K and job cuts (according to Challenger) dropped to 20.5K from over 25K prior.

Non-employment-related items on offer late last week included factory orders for July that m/m showed contraction by 1% (though due largely to defence aircraft), and the day before that manufacturing for August at 52.8 with new orders back in the expansionary territory at 51.3, so to its employment component at 54.2, and prices paid dropping to 52.5 from 60 (according to ISM).

Market reaction was a drop for key indices, and over in the bond market yields finished out the week higher and more so on the further end of the curve helping some inversions rise off lows made at the start of last month, in real terms higher across the curve, and breakeven inflation rates in for a notable drop.

Market pricing for rate hikes out of the US Federal Reserve (Fed) remains majority on a 75bp (basis point) increase in their September meeting, and the majority on a peak rate of 3.75-4% though might not be met by the end of this year.

As for the week ahead, a US holiday today usually makes for a light start in terms of flows. US services data will be released tomorrow and includes both that out of ISM and S&P with the expected divergence between the two to persist, the Fed’s Beige Book released the day after, and consumer credit which has suffered a few high readings over the past handful of months or so on offer the day after that.

Dow Technical analysis, overview, strategies, and levels

Prices finished the week close to their previous weekly 1st Support level, offering some conformist sell-breakouts (under its previous overview of 'consolidation - volatile' on the weekly that has shifted back to 'bear average' to match the daily but remains a thinner line in this time frame) with far more on offer for contrarian buy-on-reversals on the intraweek partial recovery, Thursday's 1st Support holding making it a clearer win for contrarians on the daily time frame (and so too when factoring Friday's intraday volatility past Thursday's 1st Resistance).

IG client* and CoT** sentiment for the Dow

CoT speculator bias has moved closer to the middle at 51% on longs rising 623 lots and shorts dropping 964. For the other key US indices, they are majority short Russell (77%) and S&P (67%) while majority buy Nasdaq (60%). Retail trader bias has shifted from the middle to majority buy 57%.

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.