Dow 30 Trade: ‘Trump trades’ pullback hurts shorter-term technicals

’Trump trades’ retreat off the highs on a few side effects

It was a week of losses for key US equity indices and the Dow 30 was no exception suffering a notable pullback last Friday and undoing some of the gains made since the elections. The ‘Trump trades’ rally has favored US equities and the US Dollar in the FX market, but then came the side effects with Treasury yields climbing (and so too in real terms), cautious talk from the Federal Reserve’s (Fed) Chairman Powell and stronger economic data out of the US hurting rate cut likelihoods, and Trump’s pick for the health department sending vaccine, beverage and food packaging stocks lower (Moderna -7.3%, Eli Lilly -5%, Pfizer -4.7%, BioNTech -3.7% and Amgen -4.2%, PepsiCo -4%, Monster Beverage -7%).

There isn’t much to digest on the fundamental front when it comes to the Dow 30 and its components today aside from another FOMC (Federal Open Market Committee) speaking and NAHB’s housing market index, but it’ll get busier as the week progresses with the notable one Nvidia’s earnings on Wednesday where it’s impact will be heavier on indices that carry a larger weighting such as the Nasdaq 100 and S&P 500.

Dow Technical analysis, overview, strategies, and levels

As for the technical overview, it’s still ‘bull average’ on both daily and weekly time frames, in the case of the former price above all its main longer-term daily moving averages. Otherwise its price has moved back near the middle of the bands, its ADX (Average Directional Movement Index) only just in trending territory but about to fall out of it, and not a large enough gap on the DMI (Directional Movement Index) front to give the DI+ an advantage over the DI-. It’s a rosier picture on the weekly time frame even after last week’s pullback and will take more to throw a wrench into longer-term technicals.

On the strategic front it remains a story of buy strategies in the conformist camp and sell strategies for contrarians, and on any further pullback in price buying off the daily and weekly 1^st Support levels only after a significant reversal to avoid any further pullback to the lower end of the bull channel visible on the weekly chart. Stop losses for both are mentioned below. Should there be a lack of a pullback in price and that means buy-breakout strategies will be at the ready for a move to and potentially beyond the 1^st Resistance levels in both time frames.

Those looking to go contrarian anticipating the overview to fail can entertain sell strategies, via reversal off the 1^st Resistance once price breaches the key level or going for a sell-breakout off the 1^st Support, though the latter has on average failed on most weeks for several months.

IG client* and CoT** sentiment for the Dow

The pullback off the highs undoing some of the gains since the elections has provided most IG clients with relief given they’re holding majority sell bias and in heavy short territory, dropping from 72% last Friday to 67% at the start of this week as sell positions close out and longs initiate.

CoT speculators are an exact opposite net long 67% and little changed from the week before with an increase in longs (by 2,469 lots) outdoing the increase in shorts (by 1,734 lots) but not in percentage terms.

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.