Dow 30: steady ahead of US CPI tomorrow

CPI revisions, Fed members speaking, and the S&P’s 5,000 breach

There were a few items to digest late last week, including the revisions from the Bureau of Labor Statistics (BLS) for the Consumer Price Index (CPI), which was slightly higher for October and November but lower for December. More Federal Reserve (Fed) members speak, with Logan discussing the “tremendous progress” in bringing down inflation but “not seeing any urgency to make any additional adjustments at this time” and to “take time here to continue to look at the data”. Prior to that, Barkin also favored patience, relying on the buffer of “robust demand and a historically strong labor market”, giving “time to build that confidence before we begin the process of toggling rates down”.

Key US equity indices finished higher again for the week, and this time around, small-cap also enjoyed gains, though it was the S&P 500 taking most of the attention with the breach of its 5,000 level. Over in the bond market, Treasury yields finished the week higher and, on the further end, reversing losses from the week before that, in real terms averaging closer to 2% for the 5Y through 30Y, and market pricing (CME’s FedWatch) anticipating the first rate cut out of the US central bank in May via an unhealthy majority.

Week ahead: CPI, retail sales, PPI, and more earnings

As for the week ahead, it starts off very light with little to get excited about later today aside from more Fed members speaking, but picks up tomorrow with a heavyweight as we get January’s CPI readings. Expectations are for year-on-year (y/y) growth to drop from 3.4% headline to 3%, month-on-month (m/m) to rise by 0.2%, and when excluding food and energy, to see increases of 3.8% and 0.3%, respectively (Cleveland Fed’s ‘nowcasts’ at 2.94%, 0.13%, 3.81%, and 0.32%).

Trade pricing data will be released on Thursday, where you can expect the attention to be on retail sales, already enjoying six consecutive beats, but forecasts are for a slight drop this time around. Producer prices for the same month will be on Friday, an ongoing story of sub-2% headline and core readings y/y, and forecasts are for m/m growth of just 0.1% for both. Consumer inflation expectations out of UoM (University of Michigan) have been trending in the right direction and not too far off pre-pandemic averages, and while consumer sentiment rising has been an added plus, it still requires a climb to touch 100 as it did in early 2020. The preliminary readings will also be released on Friday, preceded by a couple of items out of the housing market.

For those trading energy, the weekly API, EIA, and Baker Hughes figures will be on offer on their respective days, but add to it OPEC’s monthly report tomorrow and IEA’s on Thursday, and whether the gap in demand forecasts for this year between the two will remain wide. It’ll be relatively quieter on the US earnings front and includes Coca-Cola on Tuesday, Cisco on Wednesday, and Coinbase on Thursday.

Dow technical analysis, overview, strategies, and levels

The intraweek highs and lows were within its previous weekly 1st levels, lacking a play for conformist and contrarian strategies, but where key technical indicators and its overview remain unchanged in this time frame. As for the daily time frame late last week, Thursday's 1st Resistance held on Friday, causing conformist buy-breakout strategies to fail and lacking a trigger for contrarian sell-after-reversals, though nowhere near derailing the ‘bull average’ technical overview there.

IG client* and CoT** sentiment for the Dow

CoT speculators are heavy to the buy side, and holding at 73% thanks to similar position unwinding in percentage terms (longs -7,338 lots, shorts -2,492), and it’ll be interesting to see whether momentum traders are getting impatient and or worried. IG clients fell out of extreme sell territory to 75% at the start of this week, fresh shorts wanting out on the smallest of pullbacks in price.

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.}