Dow’s weekly red finish keeps its bear technical overview intact

Central bank action last week took the bulk of the attention with more items out of the US Federal Reserve (Fed) following last Wednesday’s 75bp (basis point) hike. FOMC (Federal Open Market Committee) voter Waller up for a 75bp hike in July to go ’all in' on 're-establishing price stability', non-voter Bostic saying 'whatever it takes', and its monetary policy report to Congress saying its 'commitment to restoring price stability' is 'unconditional'.

That seemed to spell a bit of a worry for the financial markets, especially as US economic data showed manufacturing worsened according to Philadelphia Fed’s Business Outlook Survey. Industrial production was below estimates and barely registered growth for May, a couple of items out of the housing sector showed both building permits and housing start a clear miss, and the latest GDPNow (unofficial forecast) out of the Federal Reserve of Atlanta from last Thursday, sat at 0% for this quarter, highlighting ongoing growth risks and the possibility of going negative (which with the first quarter’s contraction would mean a recession).

It wasn’t just the stock market that suffered a red finish, over in the bond market we were in for a drop as yields finished the week higher across the curve and hence in real terms closing higher, bond yield spreads are still negative for the 10-year against the 3Y, 5Y and 7Y.

As for the week ahead, there are a couple more items out of the housing sector for the US. The usual oil inventory data was pushed out a day due to today’s holiday, after a small build in last week’s readings, and testimony from Fed Chairman Powell on Wednesday and Thursday with other FOMC voters speaking today and tomorrow. Reinforcement against inflation is expected to be the theme amongst central bank members as well as preliminary manufacturing and services PMIs on Thursday where they’re expected to remain in expansionary territory but continue their descent.

Dow Technical analysis, overview, strategies, and levels

Its previous weekly 1st Support level might have initially held aiding contrarian buys while testing conformist sell, but it eventually settled beneath its 2nd Support in all aiding conformist sell-breakout strategies most. Thursday's moves also aided daily conformist sell-breakout strategies in that time frame where key technical indicators are all flashing red.

Energy suffered most as a sector last Friday, and component performance on that day put Chevron at the very bottom by the close by a significant margin ahead of Walmart and Goldman Sachs who both suffered, while the dozen or so finishing higher on the other end were led by American Express and Boeing.

While the overview hasn’t changed here as a stalling bear trend that has only stalled in the sense of failing to offer consistent week-on-week downside follow-through, the widening of levels means it’ll require sustained movement to give breakout strategies (conformist sell or contrarian buys) the edge.

IG client* and CoT** sentiment for the Dow

Dow chart with retail and institutional sentiment

In sentiment, heavy buy bias has only risen since the start of last week’s 69% for retail traders who aren't that far off extreme buy territory at 74% at the start of this week. As for CoT speculators, they’re an opposite heavy sell, rising to 72% last week from 70% the week before.

*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.