Dow 30: sentiment divergence between retail and CoT widens

Central bank summary, Fed member speak, and a government shutdown avoided

It was mostly about central bank decisions last week, and in turn, wilder moves on the FX front, and all left dollar bears waiting once more as the greenback outperformed among the majors. To summarize for late last week, after the Federal Open Market Committee’s (FOMC) hold on rates and its ’24 dot plot, there was (1) the Swiss National Bank’s rate cut to 1.5%, with market pricing (LSEG) anticipating another in June and a coin toss on getting to 1% in September, (2) the Bank of England hold but no members voting for a hike, with market pricing via majority for a June cut, (3) Norges Bank holding with an autumn rate cut “most likely”, and (4) a mixed story for emerging markets with cuts for Brazil (by 50bp to 10.75%) and Mexico (by 25bp to 11%) but hikes for Taiwan and the shock 500bp increase to 50% for the CBRT.

Market pricing remained twitchy for plenty of central banks after the decisions, and for the largest (CME’s FedWatch) very much in favor of a hold in May, via healthy majority for a cut in June, and keeping it not far off a coin toss on getting four rate reductions this year, even if the Fed’s Bostic is “definitely less confident” and expecting just one. Otherwise, it was relatively light on data last Friday out of the US after Thursday’s figures showed most beating forecasts, on the fiscal front, the spending package signed into law.

Week Ahead: PCE price index, housing data, and consumer sentiment

As for the week ahead, it’s far lighter in comparison, with mostly low to mid-impacting items until Friday’s PCE (Personal Consumption Expenditures) price index for the month of February where expectations are it’ll involve a year-on-year (y/y) hold at 2.4% for its headline and so too for its core at 2.8%, but for month-on-month (m/m) growth to remain at uncomfortable levels of 0.4% and 0.3%, respectively.

Looking at some of the rest, and there will be plenty of housing data again with new home sales later today hovering somewhat directionless as of late, housing price data tomorrow still a story of growth, the weekly mortgage applications on Wednesday after last week’s small drop, and pending home sales on Thursday.

We’ll have a closer look at consumer sentiment with CB’s (Conference Board) reading tomorrow after it suffered a notable pullback and lower revision last time around, and UoM’s (University of Michigan) revised figures that have been attempting to climb as of late, even if still well beneath pre-pandemic averages. Durables tomorrow is forecast to show expansion after February’s contraction, final GDP (Gross Domestic Product) on Thursday for the fourth quarter not a worry even if it’s a miss (Atlanta Fed’s GDPNow estimate for this quarter far lower at 2.1%), and both personal spending and income on Friday where the latter managed to best the former in the most recent readings.

Dow technical analysis, overview, strategies, and levels

Starting with the weekly time frame, we got a move that breached its previous weekly 1st and 2nd Resistance levels before closing beneath the latter, in all plenty of follow-through for conformist buy-breakouts while contrarian sell-after-reversals got stopped out. Zooming into the daily for late last week and the initial win was for conformist buy-breakouts off Thursday's 1st Resistance with a move to its 2nd Resistance before the pullback triggered contrarian sell-after-reversals that had a bit more to cheer about. The technical overview for both weekly (table below) and daily time frames remains ‘bull average’.

G client* and CoT** sentiment for the Dow

CoT speculators have taken their bias further into heavy buy territory and reversing the recent undoing in net long bias (longs +4,657, shorts -775); adding to the ongoing matter of whether momentum will add with further price gains or hold here. As for IG clients, they start the week in extreme short territory from a heavy 72% at the start of last week, and where fresh shorts don't want to linger for too long opting to close relatively quickly when there’s a pullback in price based on recent swings in sentiment.

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.