The Dow outperforms before a week of big fundamental items

Sign up for IG's Daily and Weekly Market Report to receive this information and more, in an elaborate and comprehensive report recounting the forex majors, commodities and indices before the European open.

Overview of the busy week ahead

It's set to be a far busier week on multiple fronts. US economic data includes preliminary PMIs (Purchasing Managers' Index) for this month. They are expected to continue showing the manufacturing sector in contraction, while the ongoing expansion for services continues. Any improvement in the former, but more importantly, a drop in the latter will undoubtedly be noted, given its far heavier share of the world's largest economy.

Key economic indicators to watch out for

There will be several items on offer from multiple aspects of the economy. For consumer sentiment, the Conference Board's consumer confidence will be announced tomorrow. Revised figures from the University of Michigan are due on Friday, where improved readings have been the story for both.

For consumption, we will see durables on Thursday and personal spending on Friday, both of which have been enjoying positive figures for May.

When it comes to housing, there will be pricing data for the month of May from a couple of sources tomorrow. This has lately been about month-on-month growth but still negative year-on-year prints. New home sales for June will be released on Wednesday after enjoying consecutive beats, preceded by the weekly mortgage applications. Pending home sales, which have struggled lately to match expectations, are due on Thursday.

The growth category will include the advance GDP figure for the second quarter, anticipated to show a 1.7% increase. Atlanta Fed’s GDPNow estimate for the same period is at 2.4%.

Lastly, we will have pricing data with Personal Consumption Expenditures price indices. They are expected to show its core up by 0.2% for the month of July and 4.2% year-on-year, along with inflation expectations out of the University of Michigan.

Earnings from FAANG+MT and the Nasdaq 100 rebalance

Let's not forget earnings. More of the FAANG+MT group will report their earnings, with Microsoft and Alphabet scheduled for tomorrow and Meta on Wednesday. For those trading US Tech 100, the Nasdaq 100’s special rebalance is happening today. This will reduce the concentration of its largest components and result in a tweak in the weightings of the 'magnificent seven'.

FOMC policy decision and market expectations

Finally, for central bank policy, it's time for the Federal Open Market Committee's policy decision. Market pricing from Refinitiv is nearly fully betting on a 25bp rate hike when they announce on Wednesday. However, it's also suggested that this will be the final hike in the current rate-hiking cycle, in contrast to the latest dot plot.

Dow technical analysis, overview, strategies, and levels

This index certainly took the attention last week, outperforming and enjoying consecutive sessions of gains. With a technical overview shift on the daily and gains sticking, the overview in this time frame also shifted. This was a relatively easy task given what has consistently been a blurred line between 'bull average' and 'consolidation - positive bias'.

Follow-through on the daily time frame proved a bit difficult late last week, even if it favoured conformist buy-breakouts. On the other hand, under the previous overview, then-contrarians came out on top.

IG client* and CoT** sentiment for the Dow

As for sentiment, price gains preceded by oscillations tend to raise retail trader sell bias sharply, and week-on-week they’ve gone from heavy sell 71% into extreme short at 79%. But CoT speculators are opting to pull back instead, with an increase in longs by 6,504 lots and a simultaneous drop in shorts by 4,940 taking it from 64% to a more moderate 55%.

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.}