Dow 30: Futures little changed with the attention on US politics

Weekly losses for tech, rotation favors small cap, and attention on US politics

Relatively light in terms of data last Friday out of the US, with the focus on losses for key large-cap equity indices. It was a difficult week for tech with the Nasdaq down over 4%, smaller losses for the S&P 500 (and barley changed for its equal weight index), the story of rotation prior helping both Dow 30 and small-cap Russell 2000 avoid a red finish even if they also suffered losses late last week. Treasury yields finished the week no far off where they started and a bit lower on the furthest end, and a similar story in real terms. Market pricing (CME’s FedWatch) as of late has been near fully pricing in a rate cut out of the US Federal Reserve (Fed) come September, and where via majority there will be consecutive cuts in November and December but for the latter not far off a coin toss between rate reduction and hold.

The attention has been on US politics with President Biden dropping out of the presidential race and endorsing Vice President Harris as the Democratic Party nominee.

Week Ahead: PCE price index, earnings from Tesla, and preliminary PMIs

As for the week ahead, it’s relatively light when looking at the economic data on offer, and where we’ll have to wait until Friday to get PCE’s (Personal Consumption Expenditures) readings, where expectations are that the month of June experienced contained month-on-month (m/m) growth, with forecasts pointing to 0.1% headline and 0.2% for its core.

Prior to that and there’s plenty of housing data after last week’s building permits and housing starts beat, existing home sales tomorrow after consistently struggling with near-pandemic lows, and new home sales on Wednesday hovering near pre-pandemic averages. Preliminary PMIs (Purchasing Managers’ Index) will release the same day, though less of a worry out of S&P Global with estimates pointing to expansion compared to ISM’s contraction for both manufacturing and services when it released the June prints at the start of this month.

Advance GDP (Gross Domestic Product) for the second quarter releases on Thursday, a figure near 2% seen as most likely. And then there’s earnings, plenty releasing this week and includes Alphabet, Tesla and Coca-Cola tomorrow.

Dow Technical analysis, overview, strategies, and levels

The technical overview in both weekly (table below) and daily time frames remain ‘bull average’, and that translates into buy strategies for conformists albeit only after a significant reversal off the 1^st Support, and sell strategies for contrarians expecting the latest gains to be undone. Most of the key technical indicators on the weekly time frame are positive/bullish with price above all its main moving averages and a positive DMI (Directional Movement Index), but the story isn’t as strong on the daily time frame and where an uptick in volatility has sometimes made the technical narrative breakout vs. reversal instead of buy vs. sell.

IG client* and CoT** sentiment for the Dow

There’s been a notable uptick in buy bias among CoT speculators as they reach heavy buy territory on the increase in longs easily outdoing the smaller increase in shorts (longs +8,251 lots, shorts +805), but considering how easily they reached heavy long prior at lower price levels means the heavy buy signals isn’t as reassuring just yet.

IG clients are opposite majority short, but there’s been a significant unwind in sell bias following the price plummet late last week taking the bias among them out of extreme short territory.

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.