Market Signals for the US stock market S and P 500 Index and Indian Stock Market Nifty Index for the Week beginning February 14

 

Indicator	Weekly Level / Change	Implication for S & P 500	Implication for Nifty*
S & P 500	4419, -1.82%	Bearish	Bearish
Nifty	17375, -0.81%	Neutral **	Bearish
China Shanghai Index	3463, 3.02%	Bullish	Bullish
Gold	1860, 2.91%	Bullish	Bullish
WTIC Crude	93.93, 1.75%	Bullish	Bullish
Copper	4.44, -1.55%	Bearish	Bearish
Baltic Dry Index	1977, 38.93%	Bullish	Bullish
Euro	1.1351, -0.86%	Bearish	Bearish
Dollar/Yen	115.40, 0.17%	Neutral	Neutral
Dow Transports	15000, -1.41%	Bearish	Bearish
Corporate Bonds (ETF)	124.84, -0.49%	Neutral	Neutral
High Yield Bonds (ETF)	103.13, -1.39%	Bearish	Bearish
US 10-year Bond Yield	1.92%, 0.40%	Neutral	Neutral
NYSE Summation Index	-575, 1.7%	Bullish	Neutral
US Vix	27.36, 17.83%	Bearish	Bearish
Skew	127	Neutral	Neutral
20 DMA, S & P 500	4484, Below	Bearish	Neutral
50 DMA, S & P 500	4609, Below	Bearish	Neutral
200 DMA, S & P 500	4452, Below	Bearish	Neutral
20 DMA, Nifty	17566, Below	Neutral	Bearish
50 DMA, Nifty	17464, Below	Neutral	Bearish
200 DMA, Nifty	16773, Above	Neutral	Bullish
S & P 500 P/E	25.20	Bearish	Neutral
Nifty P/E	22.68	Neutral	Bearish
India Vix	18.68, -1.15%	Neutral	Bullish
Dollar/Rupee	75.64, 1.34%	Neutral	Bearish
Overall	S & P 500	Nifty
Bullish Indications	5	6
Bearish Indications	10	11
Outlook	Bearish	Bearish
Observation	The S and P and the Nifty fell last week. Indicators are bearish for the week. The markets have begun a correction. Watch those stops.
On the Horizon	US - PPI, UK – Employment data, CPI, Japan – 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 and P and the Nifty fell last week. Indicators are bearish for the week. Deflation is in the air despite the recent inflationary spike. Feels like a 2000 style recession trade has begun. The recent rebound has run into resistance. (My views don’t matter, kindly pay attention to the levels). The S&P 500 closed below the 200 DMA for 6 consecutive sessions, after spending a very long time above it. This spells trouble ahead and opens up significant downside ahead. Markets have been making new highs amid loads of divergences and risky assets are breaking to the downside. Earnings revisions have been average, but any significant upward revisions appear unlikely. Typical late-cycle FED put stuff has led to a taper tantrum following the recent taper announcement from the FED and a likely top. Tail risk has skyrocketed with the Skew/Vix ratio recently touching double digits. The market is about to begin an epic correction. Deflationary busts often begin after inflationary scares (the market is calling the Fed’s bluff) and long bonds are telegraphing just that. 

The transports, the Dollar, market breadth, corporate bonds, and high yield bonds, are still flashing major warning signs. The epic correction signal is alive and well with retail, hedge funds, and speculators all in, despite the recent melt-up, suggesting a major top may be in. The moment of reckoning is very near.  Technicals are tracking fundamentals and have turned 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 120% in our most recent rally of the lows in the last 2-year period. After extreme euphoria for the indices, a highly probable selloff to the 4300 area is emerging on the S and P, and 14000 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) are set to repeat across the globe. SPX 1800 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 that 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 strong 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 4430 (up) and 4405 (down) on the S & P 500 and 17450 (up) and 17300 (down) on the Nifty. A significant breach of the above levels could trigger the next big move in the above markets.  High beta / P/E is getting torched as expected. Gold is increasingly looking like the asset class to own in the upcoming decade. You can check out last week’s report for a comparison. Love your thoughts and feedback.