Market Signals for the US stock market S and P 500 Index and Indian Stock Market Nifty Index for the Week beginning May 10

 

Indicator	Weekly Level / Change	Implication for S & P 500	Implication for Nifty*
S & P 500	4233, 1.23%	Bullish	Bullish
Nifty	14823, 1.31%	Neutral **	Bullish
China Shanghai Index	3419, -0.81%	Bearish	Bearish
Gold	1832, 3.59%	Bullish	Bullish
WTIC Crude	64.84, 1.71%	Bullish	Bullish
Copper	4.75, 6.02%	Bullish	Bullish
Baltic Dry Index	3183, 4.26%	Bullish	Bullish
Euro	1.2163, 1.21%	Bullish	Bullish
Dollar/Yen	108.59, -0.63%%	Bearish	Bearish
Dow Transports	15943, 3.89%	Bullish	Bullish
High Yield (Bond ETF)	109.02, -0.17%	Neutral	Neutral
US 10 year Bond Yield	1.58%, -2.88%	Bullish	Bullish
NYSE Summation Index	750, 1.59%	Bullish	Neutral
US Vix	16.69, -10.32%	Bullish	Bullish
Skew	146	Bearish	Bearish
20 DMA, S & P 500	4172, Above	Bullish	Neutral
50 DMA, S & P 500	4034, Above	Bullish	Neutral
200 DMA, S & P 500	3679, Above	Bullish	Neutral
20 DMA, Nifty	14598, Above	Neutral	Bullish
50 DMA, Nifty	14730, Above	Neutral	Bullish
200 DMA, Nifty	13057, Above	Neutral	Bullish
S & P 500 P/E	44.97	Bearish	Neutral
Nifty P/E	30.23	Neutral	Bearish
India Vix	20.82, -9.58%	Neutral	Bullish
Dollar/Rupee	73.25, -1.07%	Neutral	Bullish
Overall	S & P 500	Nifty
Bullish Indications	13	15
Bearish Indications	4	4
Outlook	Bullish	Bullish
Observation	The S and P and the Nifty rallied last week. Indicators are bullish for the week. The markets are about to begin a great depression style collapse. Watch those stops.
On the Horizon	US – CPI, PPI, UK – GDP
*Nifty	India’s Benchmark Stock Market Index
Raw Data	Courtesy Stock charts, investing.com, multpl.com, NSE
**Neutral	Changes less than 0.5% are considered neutral

 

          The S & P 500 and the Nifty rallied last week. Indicators are bullish for the week. Earnings growth has been very good but it is in the price.Typical late cycle FED put stuff. The market is on the verge of an epic correction. Deflationary busts often begin after inflationary scares (the market is calling the Fed’s bluff) and gold is telegraphing just that. Corporate bonds are flashing early warning signs. The epic crash signal is alive and well with retail, hedge funds, and speculators all in, despite the recent melt-up and break out of the long-term broadening top, suggesting a major top is imminent. The moment of reckoning is very near.  Technicals are about to track fundamentals and turn bearish. The market is yet to price in one of the worst earnings decline periods in stock market history. With extremely high valuations, a crash is on the menu. Extremely low volatility suggests complacency and downside ahead.

We rallied 46% right after the great depressions (1930’s) first collapse and we have rallied over 80% in our most recent rally of the lows in the last 12 month period. After extreme euphoria for the indices, a highly probable selloff to the 3000 area is emerging on the S and P, and 10000 should arrive on the Nifty in the next few months. The FED is repeating the Japan experiment and the 3 lost decades in Japan (1989-2019) is set to repeat across the globe. SPX 1500 and lower in a year and we stay there till 2030, scary? The markets are very close to an epic meltdown and the SPX is headed way lower.

The markets are overvalued, overbought and out of touch with economic realities. Long term, the epic meltdown is set to continue resulting in a 5 year plus bear market with lot lower levels may be as low as 800 on the S and P. QE forever from the FED is about to trigger the deflationary collapse of the century as we make a major top in global equity markets. The market is looking like the short of a lifetime with topping action in the transports, other global indices, and commodities. High valuations continue.

The recent global virus epidemic (black swan) has dented global GDP significantly and will usher in a depression much faster than most think. The trend is about to change from bullish to bearish and the markets are about to get smashed by a rebounding dollar. Looking for significant underperformance in the Nifty going forward on rapidly deteriorating macros. A 5-year deflationary wave has started in key asset classes like the Euro, stocks, and commodities amidst several bearish divergences and overstretched valuations.

We are entering a multi-year great depression. The markets are still trading well over 3 standard deviations above their long-term averages from which corrections usually result. Tail risk has been very high of late as interest rates are about to plunge yet again reflecting a major recession. The critical levels to watch for the week are 4245 (up) and 4220 (down) on the S & P 500 and 14900 (up) and 14750 (down) on the Nifty. A significant breach of the above levels could trigger the next big move in the above markets. The Nifty, Shanghai composite, and dollar are on Ichimoku daily sell signals while gold, bonds, and the S & P 500 are on Ichimoku daily buy signals so some things got to give. High beta / P/E is about to get torched soon (despite the bullish consensus emerging). Gold will likely prove to be the best asset class the next 5 years. You can check out lastweek’s report for a comparison. Love your thoughts and feedback.