Dow 30: Steady after Friday’s gains following Fed Powell’s pivot

Fed Chairman Powell’s pivot

The attention was on Federal Reserve (Fed) Chairman Powell’s speech last Friday at Jackson Hole, where he said that the "time has come for policy to adjust" as the "direction of travel is clear, and the timing and pace of rate cuts will depend on incoming data, evolving outlook, and the balance of risks.”

Other FOMC (Federal Open Market Committee) members speaking included Goolsbee implying current policy too tight as the economy is "not overheating", and Bostic that a September or November rate cut "definitely in play.” Market pricing (CME’s FedWatch) following the event continues to fully price in a rate cut in September, but it’s a significant minority on reaching 50bp (basis points) in one go, with the likelihood far healthier and a majority on seeing such a reduction in their November meeting. Key equity indices finished the week higher with the small-cap Russell 2000 and S&P MidCap 400 outperforming as the gains were around 1% for the large caps including the Dow, and Treasury yields (both nominal and real) were in retreat.

Week Ahead: Nvidia’s earnings, PCE price index, and preliminary GDP

As for the week ahead, we won’t have to wait long to get data of importance, though patience will be required to get to the high-impacting items. PCE (Personal Consumption Expenditures) pricing data releases on Friday where expectations are for July month-on-month (m/m) growth of 0.2% for both headline and core (which excludes food and energy). Personal income for the same month is expected at 0.2% matching June’s miss, with better growth for personal spending at 0.5%.

For the remaining items, durables today forecast to show decent growth after June’s notable contraction but where excluding transportation flat, CB’s consumer confidence and housing price data tomorrow, the weekly mortgage applications after last week’s drop, claims on Thursday where a beat or matching estimates (as has been the case over the past few weeks) are a relative plus in removing fears over the labor market, and preliminary Q2 GDP (Gross Domestic Product) releasing at the same time forecast to show growth of 2.8%.

And while it’s been relatively quiet in terms of earnings, we’ve got the biggest one on the AI front with Nvidia this Wednesday, Salesforce also releasing its figures that day. A few FOMC members will be speaking this week, and for the bond traders a few key auctions.

Dow Technical analysis, overview, strategies, and levels

The technical overview was and still is ‘bull average’ on the weekly time frame even after weeks of struggling, with price working within wider bands where the movement within it can tilt key technical indicators from bullish to bearish. Price is currently above all its main weekly (and daily) moving averages, not far off the upper end of the band, on the DMI (Directional Movement Index) front a healthier margin for the DI+ over the DI- compared to the shorter-term daily time frame, and an ADX (Average Directional Movement Index) reading still beneath trending territory.

There have been fundamental updates as of late aiding its positive technical bias, but getting to the weekly 1^st Resistance and offering movement beyond it for conformist buy-breakout strategies has been another matter. A bull average overview means buy strategies are in the conformist camp while contrarians who expect the gains to struggle can entertain contrarian sell strategies, though for a sell-breakout strategy beneath the weekly 1^st Support that offers enough follow-through has on average been a rare occurrence on the longer-term weekly.

IG client* and CoT** sentiment for the Dow

CoT speculators have moved out of slight buy territory to 59% on the increase in longs (by 4,495 lots) and a simultaneous reduction in shorts (by 996), as predicted given the high momentum correlation as price moves higher. But in percentage terms their net long bias is lower than when price was at this level before.

IG clients are extreme sell with the bias among them rising since the start of last week as they shorted into price gains, with the brief range-trading moves early last week enticing those trading the ranges into closing out longs with smaller profits and some shorts holding on.

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.