The Dow Jones futures (CBOT: YM) wrapped up 2023 on a high note, showcasing a remarkable nine-week streak of gains. However, as the new year unfolded, a shift in dynamics became apparent. The first Non-Farm Payroll (NFP) report for the year adopted a cautious stance. Despite the market’s anticipation of a 170,000 print, the economy added an impressive 216,000 jobs, a substantial jump from the previous 173,000.
The unemployment rate, holding steady at 3.7% instead of the expected 3.8%, reinforced the notion of a robust labour market. Notably, average hourly earnings climbed from 4% to 4.1%, surpassing the market’s forecast of a slowdown to 3.9% in wage growth. These surprising developments contributed to a 0.77% decline in futures during the first week of 2024. As attention remains fixed on forthcoming data releases, the equity market is poised for potential shifts in expectations regarding the timing of rate cuts in 2024.
Technical
The futures remain near all-time highs following the stellar uptrend that emerged from the late October bottom through December last year. However, after a few sessions of consolidation, the recent contraction holds the potential to sustainably break the trend and enforce a reversal.
On the 1D chart, the 25-SMA (green line) at 37,338 could act as the first level of interest in the upcoming sessions. The short-term momentum could be determined here, as a breakdown could trigger an additional move toward support at 36,859. Here, a retracement is possible to retest the breakdown point. However, another down leg could result in a longer-term pullback toward the 50-SMA (blue line) at 35,900.
However, if support at the 25-SMA holds, it could confirm the market’s bullish sentiment despite the recent pullback. In this case, the bulls could attempt a breakout at 38,134. If the futures move above this level, the uptrend may be sustained, opening the door for the futures to continue forming new all-time highs.
Summary
The US equity market did not continue its stellar momentum from 2023 into the new year, as a robust jobs report raised some red flags on the market’s confident bets on aggressive rate cuts in the upcoming year. From the all-time highs, a pullback threatens the uptrend’s sustainability for the Dow Jones futures, making support at 37,338 a crucial one to look out for in the opening session of the week.
Sources: Koyfin, Tradingview, Reuters
Piece written by Tiaan van Aswegen, Trive Financial Market Analyst
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