Mixed Market Signals: Dow Jones Faces Bearish Threats as S&P 500 Shows Bullish Resilience

The Dow Jones Industrial Average (DJIA) ended the week near its starting point, recovering from Monday's significant thousand-point drop but making no further gains. The market's focus has shifted to next week's key inflation data, with investors keenly watching for signs that could influence the Federal Reserve's decision on rate cuts in September.

Throughout the week, the Dow faced volatility driven by concerns over the Fed's handling of rate cuts and a global market reaction to softer US economic data. Despite hopes for an emergency rate cut, strong US employment figures and steady wage growth tempered expectations. Markets now price in a more modest 53.5% chance of a 50 basis point rate cut in September.

Next week, investors will closely watch the US Producer Price Index (PPI), Consumer Price Index (CPI), and other key economic indicators for further clues on the Fed's rate-cutting path.

Technically, the Dow Jones remained below the 50-day EMA for an entire week, a sign of weakness not seen since mid-April, with the index down 7.22% from its July highs.

Sol Analysis

Quick recap from our last post, we had all eyes on bullish momentum for indices. So, lets dive right into chart analysis https://www.tradingview.com/x/EJ8YdVJH/ looking at the chart we indeed saw some upside last week. We are approaching a key reversal zone across many indices. We will be noting any smart money reversal signals. I also want to note this bullish momentum is from a SMT on the weekly chart. The only cracking asset being dow jones, failing to create a swing low that was created on sister assets https://www.tradingview.com/x/0wkw5B9O/. The reactions from this level show pretty strong wicks rejecting downside. We will look into our smart money indicators for further analysis. Keeping in mind we have a 3 days news week Tues - Thurs presenting some interesting volatility in both directions I would say, or presenting a very strong one sided trend. A market of opportunity for forex, options & futures traders alike.

Smart Money Indicators

Looking at the COT Data, we see a large amount of short orders being removed from russel & s&p500 signaling further bullish. However in the Dow Jones we see long positions being removed while a small number of shorts increased. Signaling two potential bearish scenarios occurring, the dow jones fails to make a swing high while sister assets do, signaling a reversal from this upside we have seen. Or the dow jones takes out that failure swing low point that caused the weekly bullish SMT, negating it. We saw an over all increase in net positions paired with a positive % net change over all. However with our last look at the COT report, across all indices there has been a significant drop in open interest, showing a decreasing interest in longing the market.

Looking at retail positioning we can see they are overall short on the s&p500 and dow jones but bullish on nasdaq & russel.

We signaled the put-call ratio being overly bearish last time signaling the bullish movement. Now looking at it we see it has stabilized with bullish sentiment in favor.

Looking at seasonality tendencies indices typically experience a dip this week. However, looking at the seasonality performance from month to month; we can see that the s&p500 has been moving off from the norm.

Looking at our price forecaster, it is predicting downside in price, coupled with the fear/greed indicator show casing a risk off environment with fear being 8.33%. Our technical analysis of some potential sell side is of high probability. Will we then be continuing our down trend or is this the best time to get back with the bulls? Our COT data shows a neutral position taking both sides. Will review other markets for a holistic view.