Dow suffers a retreat and a technical overview shift

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Dow technical analysis, overview, strategies, and levels

US data late last week showed producer prices growing at its largest annual pace in 11 years, year-on-year at 8.3%, while month-on-month at 0.7%, Thursday’s unemployment claims at a pandemic low of 310,000. On the fiscal policy front in the US, more proposals emerged from the House Ways and Means Committee with regards to the next tranche of the reconciliation plan, yet to release details of a tax increase with reports talking of a 26.5% corporate tax rate, the UK among the first of Western nations to increase taxes in what is expected to be a global theme moving forward as the weight of pandemic stimulus and larger government programs starts to bear on budgets stretched to the max.

For equities, it was a red week and one where for Wall Street went beneath its previous weekly first support level giving contrarian breakout strategies in this time frame the clear edge, on the daily late last week conformist breakouts in line with its 'consolidation - volatile' overview in that time frame showing more difficulty in breaching support levels, and where the technicals are turning more negative there (a much easier task given it follows significant oscillation that caused technical indicators to huddle close to price levels). Should it be a start of a larger correction (or even a sluggish September), and contrarian strategies against its now shifted consolidatory overview might have the edge.

Only a handful of the Dow 30’s components finished higher on Friday with the gains minimal at best, losses on the other end heaviest for Apple Inc following the epic ruling that would allow developers the option to offer other forms of purchases even if Apple's is expected to be more convenient, the tech giant considering it a victory as it avoided the monopolist label.

As for the week ahead, the real standout is expected to be tomorrow’s US Consumer Price Index (CPI) figures, expectations it’ll ease off of its previous 5.4% year-on-year increase, and estimates that month-on-month it’ll show growth that’s a bit lower at 0.4% after its previous 0.5% reading, this all following last Friday’s producer prices.

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IG client* and CoT** sentiment for the Dow

In sentiment, CoT speculators reduced longs by 4,649 lots outdoing a 849 lot decrease in shorts, pushing majority short bias higher to 56%. As for retail bias, the price drops have meant the previous heavy sell 67% bias amongst them has shifted to a majority long 57%.

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.}