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Dow 30: gains but fails to outperform as tech takes the attention

Technical overview remains bullish, while in sentiment retail traders are pushing further into extreme sell territory.

Source: Bloomberg

Better data where it matters, investors still euphoric on tech

Last week saw several key data releases, with preliminary figures from the University of Michigan (UoM) indicating a significant jump in consumer sentiment from 69.7 to 78.8. Additionally, consumer inflation expectations decreased to 2.9% for the 12-month outlook and slightly dropped to 2.8% for the five-year forecast. Despite these positive indicators, existing home sales for December were disappointing. However, building permits and housing starts outperformed forecasts, although the latter experienced contraction.

Key US stock indices, including the S&P 500 and the tech-heavy Nasdaq 100, rebounded from intraweek lows to reach fresh record highs, buoyed by updates in the technology sector.

Yields up, rate cut likelihoods drop

The bond market saw week-on-week strength in Treasury yields, although there were challenges in sustaining higher yields in real terms. Comments from the Federal Reserve’s Mary Daly indicated that significant work remains to reduce inflation to the central bank's 2% target. Daly remarked it is “premature to think” that rate cuts are imminent. Similarly, Raphael Bostic required “very convincing” evidence to support normalization before the third quarter. Market pricing now suggests a fifty-fifty chance of a rate cut in March, with little likelihood of rates dropping below 3.75-4% by year-end. The US has avoided a government shutdown, with the latest stopgap bill extending the deadline to March.

Week ahead – PMIs, GDP, pricing, and earnings

The upcoming week in the US starts quietly, with low-impact data expected, including the Richmond Fed’s manufacturing index. However, things will intensify with the release of preliminary PMIs (Purchasing Managers’ Index) from S&P Global on Wednesday.

Thursday will see a flurry of significant data releases, including Advance GDP (Gross Domestic Product) for the fourth quarter, anticipated to show growth (Atlanta Fed’s GDPNow estimate at 2.4%). Additionally, durable goods orders for December and weekly claims will be closely watched.

Pricing remains a key focus, especially following a hotter-than-expected Consumer Price Index (CPI). The Personal Consumption Expenditures (PCE) price index for December is expected to remain steady at 2.6% year-on-year (y/y) for the headline figure, with a modest increase of 0.2% month-on-month (m/m). The core index is predicted to drop to 3% y/y and rise by 0.2% m/m. Significant earnings are on the horizon, with Procter & Gamble and Johnson & Johnson (both Dow 30 components) reporting on Tuesday, followed by Netflix, and Tesla on Wednesday.

Dow technical analysis, overview, strategies, and levels

The Dow Jones Industrial Average experienced higher highs and a higher close. The weekly timeframe and intraweek movements showed limited opportunities for conformist and contrarian strategies, with lows above its previous first Support and highs below its first Resistance. All key technical indicators remain positive/bullish, maintaining a ‘bull average’ overview.

On the daily timeframe, Friday’s significant movements showcased more substantial implications. The short-term technical indicators, which were not neutral, turned entirely green by the close. The index's movements surpassed Thursday’s first and second Resistance levels. As a result, conformist buy-breakout strategies were particularly successful, in line with the bullish technical overview.

Source: IG

IG client* and CoT** sentiment for the Dow

CoT speculators have reduced their majority buy bias for the first time since early November of last year even if still in heavy long territory on a drop in longs and simultaneous increase in shorts (longs -3,427 lots, shorts +2,368). IG clients are increasingly adopting a sell stance, beginning the week at 86% short bias, the highest among the six indices (S&P 500, Dow 30, Nasdaq 100, FTSE 100, DAX 40, and ASX 200).

Source: IG

Dow chart with retail and institutional sentiment

Source: IG
  • *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.

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