Dow 30: futures steady after strong week of price gains

Weakening US labor market

Upon reviewing the latest US labour data released last Friday, several key trends have emerged. Firstly, the Non-Farm Payrolls for October exhibited a growth of 150,000 jobs. However, this figure fell short of the approximate 180,000 jobs estimated, primarily due to the impact of auto strikes, which have now concluded. Additionally, there were downward revisions of 101,000 jobs. Secondly, the unemployment rate inched higher to 3.9%, reflecting a decrease of 348,000 in the household survey. The underemployment rate also increased slightly to 7.2%. Thirdly, the labour force participation rate experienced a slight decrease, falling to 62.7%, as did the employment-population ratio, which dropped to 60.2%. Lastly, wage growth only increased by 0.2% month-on-month (m/m), once again failing to meet expectations.

Bad news is good news

Following the release of additional data, we find ourselves in a scenario where 'bad news is good news.' The Institute for Supply Management's (ISM) services Purchasing Managers' Index (PMI) and S&P Global's data both fell short of expectations, although they remain within expansionary territory. These disappointments have further fueled the narrative that the Federal Reserve (Fed) is unlikely to raise interest rates again in the current economic cycle. Market pricing, as indicated by CME's FedWatch, reflects a dwindling minority in favor of a rate hike, with the first rate cut from current levels being seen as roughly a 50/50 chance for May of next year.

Key central banks are anticipated to maintain their current interest rates, and the prospect of earlier rate cuts in the coming year, coupled with declining yields, has translated into a rally for key indices. As the week concluded, these indices displayed considerable strength, easily adapting to shorter-term technical adjustments and positioning themselves for the final two months of the year, traditionally the strongest period in terms of seasonality.

Week ahead

Looking ahead to the coming week, the economic calendar doesn't offer much to generate excitement. Most of the scheduled releases from the US are typically of minimal impact, unless they collectively reinforce the narrative of further weakness in the US economy. To start the week, the loan officer survey for the third quarter will be published, building on the Fed's previous report for the second quarter, which indicated that US banks were tightening credit standards, even though key metrics remained well below the levels observed at the peak of the pandemic.

In terms of consumer credit, August brought a significant surprise with a substantial month-on-month (m/m) decline not seen in three years. The figures for September are due to be released tomorrow. Additionally, an ongoing trade deficit and a pessimistic reading from IBD/TIPP are expected before the market turns its attention to the demand observed at the 10-year and 30-year auctions on Wednesday and Thursday, respectively.

On Friday, preliminary data from the University of Michigan (UoM) will be released following a substantial increase in consumer inflation expectations for the 12-month horizon last month. In the realm of central banks, there is an array of speeches from various members throughout the week, including remarks from Fed Chairman Powell.

Dow technical analysis, overview, strategies, and levels

We got a cross and close above its previous weekly 1st resistance level, causing cautious conformist sell-after-significant reversals to fail and a win for contrarian buy-breakouts, with fundamental items to digest that was capable of shifting technical in both time frames, for the daily going past Thursday's first and second resistance levels. Also favoring contrarian buy-breakouts and shifting the overview in that time frame as price crossed a couple key moving averages, and closed above its short-term bear channel.

IG client and CoT sentiment for the Dow

The price gains enticed longs into closing out and shorts into initiating; and a shift for retail traders from what was heavy buy 70% at the start of last week to a heavy sell 65% at the start of this week. CoT speculators weren’t beneficiaries of the latest moves, given prior were holding a heavy sell bias that rose a notch to 72%.

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 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}