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Dow Jones – Talking Points
- Dow Jones Continues Tracking YTD Losses; Big Fiber Levels Close
- U.S. traders ignore weak Chinese economic data
- Lower Treasury yields make a bid for stocks
Stocks rose on Monday as U.S. traders remained bullish after last week’s bullish run. The Dow recovered about 180 points in early trade as economic data from China weighed on sentiment in overnight trade. Traders may be more focused on the possibility of a peak in U.S. inflation after last week’s CPI pressure, despite heightened concerns about slowing global growth. This week, with major retailers such as Home Depot and Walmart reporting earnings, market participants will be watching closely for clues on the health of the U.S. consumer. With earnings remaining relatively strong and sentiment continuing to improve, the recent rally may have more room to play in the near term.
The Dow has gained 2.9% over the past week, bringing the index down about 14.5% from its June low, and Monday’s gains brought the value index closer to a bull market. This “summer rally” puts the Dow back on track from the 50% Fibonacci retracement level of the year-to-date decline, focusing on the 0.618 Fibonacci level just above 34,000. 34,000 has typically been a key support level for the index through Q4 2021 and most of Q1 2022, and dips in this area have continued to be bought. The Dow is above its 200-day moving average for the first time since April.
Dow Jones Futures (YM) 4 Hour Chart
The value-weighted index is now entering a critical period, with key constituents poised for gains in the coming weeks. On this week’s card, we have Walmart, which was crushed by weak guidance in previous reports. If Walmart can beat expectations and show that consumers remain strong, the Dow could benefit as prospects for a “soft landing” could increase. Home Depot is expected to report quarterly earnings on Tuesday, with analysts expecting earnings of $4.93 per share on revenue of $43.3 billion. Energy stocks weighed on the Dow on Monday as oil prices continued to fall. Chevron shares fell 1.5% as WTI retreated below $90 a barrel.
Dow Jones Futures (YM) Weekly Chart
Despite the recent rebound in stocks, the outlook remains generally mixed. While CPI and PPI weakened last week, the Fed may need to get more data points ahead of its September meeting to determine if a policy pivot is really appropriate. U.S. Treasury yields were released on Monday, boosting stocks, but the inflows into bonds could indicate that “smart money” is in trouble.
As growth expectations continue to decline, the possibility of a recession remains a top priority for many. While U.S. consumers remain strong, there could be spillover effects if a global recession hits. Since the Dow and its constituents are sensitive to changing trends in the global economy, traders may want to maintain their reliance on data when trading blue-chip indices.
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