First half struggles to keep the Dow’s weekly technicals bearish

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There was plenty of data to digest late last week, and the central bank's hawkishness and its response to inflation meant financial market participants were hoping for some slowdown in pricing. Thursday’s US PCE (Personal Consumption Expenditures) Price Index showed 6.3% y/y overall and its core 4.7%, m/m 0.6% and 0.3%. Other economic data included

1. Personal spending and income for May with the former a clear miss at just 0.2% and the latter at 0.5% and hence declining in real terms,
2. Construction spending in retreat,
3. ISM’s (Institute for Supply Management) PMI (Purchasing Managers Index) worsened with a smaller 53 figure, where employment and new orders were in the sub-50 contracting territory and a drop though still expansionary for prices paid.

The results put the Atlanta Fed’s GDPNow estimate for the second quarter at -2.1% which would imply a recession given the first quarter’s contraction. The speed with which it has shifted for this quarter shows how sensitive and quickly the narrative can change. It also meant Treasury yields were in for a drop for the week and was more notable on the further end of the curve causing real yields to finish lower, corporate spreads widening against it, and a clear drop in breakeven inflation expectations. Market pricing of Fed hikes are still a majority for 75 basis points in their meeting later this month, majority 50 for September, 25 thereafter for a couple of meetings where it then reaches its peak.

As for the week ahead, a holiday today in the US will keep the stock and bond markets closed with trading expected to be light. The next key item are the minutes from the US Federal Reserve (Fed) on Wednesday and services PMIs for most will be on offer tomorrow after what was largely a disappointment in preliminary readings, for the US pushed out to Wednesday for both ISM and S&P. US oil, gas and distillate inventory readings out of API and EIA are also going to be a day later this week, and once that’s out of the way the focus is going to shift to employment with job openings on Wednesday expected to remain high, the usual Thursday unemployment claims preceded by ADP’s non-farm estimate, before the market-impacting Non-Farm Payrolls on Friday alongside a string of other items out of the BLS (Bureau of Labor Statistics). Expectations are for a smaller 270K reading, with wage growth of 0.3%, and an unemployment rate unchanged at 3.6%. Consumer credit is one item to note when it comes to consumption, as large m/m readings mean sustainability in purchases will be put into question as the longer prices remain high.

Dow Technical analysis, overview, strategies, and levels

There might have been some on offer for conformist sell-breakout strategies on the intraweek move past its previous weekly 1st Support level, but there was more for contrarian buy-fade strategies. From a daily time frame’s standpoint, last Thursday's moves gave daily conformist sell-breakouts the edge on a move past its previous daily 1st Support level's S/L (stop loss).
From a technical standpoint there's been no change for either weekly or daily time frame, a 'bear' though labelling it a stalling trend or average a somewhat of a thin line given the width of the latest bear channel.

IG client* and CoT** sentiment for the Dow

Dow chart with retail and institutional sentiment

CoT speculators reduced longs by 649 lots and shorts by a larger 850 lots, the net result pushing the bias further into extreme sell territory at 79%. They are also majority short S&P 500 (61%) and Russell (78%), while majority buy Nasdaq (59%). Retail trader bias here is on the buy side however at 56%, shifting from slight sell 51% at the start of last week.

*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.