Dow suffers another week of losses, CPI the key item this week

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Fixated on US Non-Farm Payrolls last Friday, and market participants were in for disappointment with a 210,000 reading that was less than half roughly 550,000 expectations (though previous two months revised 82,000 higher lessening the miss), the unemployment rate dropping to 4.2%, and wage growth below estimates at 4.8% year-on-year, 0.3% month-on-month also a slight miss. The employment-population ratio rose to 59.2%, while the labor force participation rate was at 61.8%, showing slowed job growth (and this prior to Omicron) but also a slight return to the labor force. Other economic data included services that impressed the US with a healthy ISM reading of 69.1 (and 58 for Markit’s).

Central bank speak turned more hawkish in the past week with an accelerated tapering of purchases looked more likely for next week’s Federal Open Market Committee (FOMC), and on the fiscal policy front the government shutdown was averted to keep it funded until mid-February, though there’s still the debt ceiling to contend with as funds are estimated to run out in roughly two weeks’ time. As for the coronavirus, cases nearing 266 million, deaths above 5.25 million, cases somewhat consolidating in the US while deaths trend lower, attention still on details emerging of the latest variant.

When it comes to the week ahead, the big one out of the US is on Friday with Consumer Price Index (CPI) figures, expectations for another big reading as the US central bank shifts from a transitory outlook for inflation. There will also be preliminary consumer sentiment and inflation expectations out of UoM the same day. Next week is expected to set the tone in terms of global monetary policy for the near future given the string of monetary policy announcements with heavy hitters on offer and where it’s expected to impact major quantitative easing decisions.

Dow technical analysis, overview, strategies, and levels

With prices hovering near a mid-term support level, the pullback has shifted what were already tested, weak, and easily-prone-to-shift technical boxes into the red for both time frames, averaging back down in line with daily expectations but causing an overview shift for the weekly from what was a heavily stalling bull trend. Though keep in mind volatility will need to remain high to take prices past key levels consistently given how they'll automatically widen with time. Component performance put Walgreens on top on a potential sale of a UK unit, but most were in the red with losses led by Microsoft Corp (All Sessions) and Boeing Co (All Sessions).

IG client* and CoT** sentiment for the Dow

When it comes to CoT (Commitment of Traders) speculators, they've moved away from the middle from what was slight sell 51% to 55% on a drop in long positions by 2,524 lots outdoing a much smaller drop in shorts by 182 lots. For the remaining US indices, they are majority buy US Tech 100 (62%) and US 500 (63%) while majority sell US Russell 2000 (60%).

Retail bias is an opposite majority buy and dropping to 57%, and retail traders are majority long in other indices like the S&P, Nasdaq, FTSE 100 and Germany 40.

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.}