Dow suffers another week of retreat, underperforms against Nasdaq

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There was little on offer in terms of US economic data late last week, manufacturing out of the Philadelphia Fed showing clear strength and following what had been a stronger reading out of the New York Fed earlier in the week, Thursday’s unemployment claims missing estimates but edging slightly lower. That left it open to plenty of central bank speak, where members of the US Federal Reserve (Fed) came off as more hawkish on the possibility of a faster pace of tapering at least discussed in their next meeting in December. On the fiscal policy front the House passed President Biden’s $1.7 trillion bill on Friday and will face a much more difficult process in the Senate, this following the signing of the bipartisan infrastructure program earlier last week, while short-term fears over the debt ceiling were pushed until mid-December.

As for coronavirus, it’s retaken plenty of attention, cases nearing 258 million, deaths in the 5.1 million handle, average cases trending higher in the US, UK, and as Europe once more becomes the epicenter of the pandemic to record highs in Germany and Austria. National emergency for the former while a full lockdown starting today and mandatory vaccines next year for the latter; in vaccine news Pfizer Inc (All Sessions) and Moderna Inc booster shots now eligible for all US adults.

As for the week ahead, little surprise it’s a quiet start with a couple items left for today after the People’s Bank of China (PBoC) kept its key rates on hold for the one-year Loan Prime Rate (LPR) and five-year at 3.85% and 4.65% respectively, with preliminary manufacturing and services PMIs on offer for plenty tomorrow out of Markit with expectations of ongoing growth for both sectors. Even if the readings might drop on previous figures for Europe, the US manufacturing data also on offer out of the Richmond Fed is usually of little impact.

The big one for the US however is Wednesday’s string of items prior to Thanksgiving Day, and includes preliminary GDP (Gross Domestic Product) after the advance reading disappointed showing only 2% growth for Q3, pricing data out of the Bureau of Economic Analysis estimated to show 4.6% year-on-year growth for Personal Consumption Expenditure (PCE) and following 6.2% year-on-year growth for Consumer Price Index (CPI), personal spending and income after the latter contracted by 1%. Minutes from the latest Fed meeting where they decided to start tapering asset purchases, durables which disappointed last time around, and unemployment claims. In earnings for the US, relatively quiet with (non-component) Zoom Video Communications Inc expected to release its figures today. Outside the economic calendar there’s the possible Fed Chair announcement, and coronavirus numbers given the attention rising cases and lockdowns have been getting.

Dow technical analysis, overview, strategies, and levels

The increase in volatility wasn't noteworthy, but it was enough to take prices past key levels on the daily where the technical overview is ‘consolidation – volatile’ on expectations of moves past key levels even if it averages back, reversals at risk of getting stopped out as moves went past stop losses (S/L's), and aiding breakouts in that time frame.

For the weekly time frame here, the previous weekly first support level held meaning contrarians didn’t have much to cheer about, but there’s no denying the conflicting heavily stalling bull trend technical overview in this time frame shows signs of clear weakness with a couple key technical indicators shifting to neutral and tempting contrarian sells.

Component performance on Friday showed few in the green, gains led by NIKE Inc (All Sessions) and Apple Inc (following a report shedding light on a 2025 deadline for a self-driving car), while Boeing Co (All Sessions), Merck & Co Inc (All Sessions), Travelers Cos Inc and Chevron Corp (All Sessions) led the losses for the majority in the red.

IG client* and CoT** sentiment for the Dow

For CoT (Commitment of Traders) speculators, they have upped their slight sell bias from 51% to 53% on an increase in shorts by 1,430 lots, hardly a change in long positioning. As for retail traders, the pullback in price over the past week has meant majority short bias has dropped from 63% at the start of last week to an identical slight sell 53% at the start of this week.

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.}