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Ahead of the Curve provides you with analysis and insight into today's global financial markets. The latest news and views from global stock, bond, commodity and FOREX markets are discussed. Rajveer Rawlin is a PhD and received his MBA in finance from the Cardiff Metropolitan University, Wales, UK. He is an avid market watcher having followed capital markets in the US and India since 1993. His research interests includes areas of Capital Markets, Banking, Investment Analysis and Portfolio Management and has over 20 years of experience in the above areas covering the US and Indian Markets. He has several publications in the above areas. The views expressed here are his own and should not be construed as advice to buy or sell securities.

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Monday, 4 April 2022

Market Signals for the US stock market S and P 500 Index and Indian Stock Market Nifty Index for the Week beginning April 04

 

Indicator

Weekly Level / Change

Implication for

S & P 500

Implication for Nifty*

S & P 500

4546, 0.06%

Neutral

Neutral

Nifty

17671, 3.02%

Neutral **

Bullish

China Shanghai Index

3283, 2.19%

Bullish

Bullish

Gold

1924, -1.56%

Bearish

Bearish

WTIC Crude

99.38, -12.75%

Bearish

Bearish

Copper

4.71, 0.19%

Neutral

Neutral

Baltic Dry Index

2357, -7.35%

Bearish

Bearish

Euro

1.1041, 0.55%

Bullish

Bullish

Dollar/Yen

122.54, 0.39%

Neutral

Neutral

Dow Transports

15511, -5.34%

Bearish

Bearish

Corporate Bonds (ETF)

119.27, 1.53%

Bullish

Bullish

High Yield Bonds (ETF)

102.15, 0.81%

Bullish

Bullish

US 10-year Bond Yield

2.39%, -3.33%

Bullish

Bullish

NYSE Summation Index

-116, 67%

Bullish

Neutral

US Vix

19.63, -5.67%

Bullish

Bullish

Skew

146

Bearish

Bearish

20 DMA, S & P 500

4408, Above

Bullish

Neutral

50 DMA, S & P 500

4412, Above

Bullish

Neutral

200 DMA, S & P 500

4486, Above

Bullish

Neutral

20 DMA, Nifty

16936, Above

Neutral

Bullish

50 DMA, Nifty

17113, Above

Neutral

Bullish

200 DMA, Nifty

17068, Above

Neutral

Bullish

S & P 500 P/E

25.92

Bearish

Neutral

Nifty P/E

23.19

Neutral

Bearish

India Vix

18.44, -21.32%

Neutral

Bullish

Dollar/Rupee

75.95, -0.43%

Neutral

Neutral

 

 

Overall

 

 

S & P 500

 

 

Nifty

 

Bullish Indications

10

11

Bearish Indications

6

6

Outlook

Bullish

Bullish

Observation

The S and P was unchanged and the Nifty rallied last week. Indicators are bullish for the week.

The markets are correcting. Watch those stops.

On the Horizon

US – FOMC rate decision minutes, Eurozone - ECB rate decision minutes, India – RBI rate decision

*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 was unchanged and the Nifty rallied last week. Indicators are bullish 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 will likely run into resistance. (My views don’t matter, kindly pay attention to the levels). The S&P 500 closed below the 200 DMA recently, after spending a very long time above it. Monthly MACD’s on most global markets have gone negative after a long time. This spells trouble ahead and opens up a significant downside ahead. We could get a reality check in the markets this week.

We got a bounce that reached the 200 DMA without capitulation. This suggests the lows may not be in. 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 topTail risk has skyrocketed recently. 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 led the recent rebound and are likely now about to lead a market decline. The Dollar, tail risk, market breadth, and bond yields, 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 recently turned bearish. 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 4000 area is emerging on the S and P, and 15000 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.

The trend is about to change from bullish to bearish and the markets are about to get a reality check and get smashed by a strong dollar. Looking for significant underperformance in the Nifty going forward on rapidly deteriorating macros. Tail risk has been very high of late, as yield curves are about to invert yet again reflecting a major upcoming recession. 

The critical levels to watch for the week are 4560 (up) and 4535 (down) on the S & P 500 and 17750 (up) and 17600 (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 about to get torched yet again. 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.

 

 

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My belief is that stocks are relatively overvalued compared to bonds and attractive buying opportunities can come along after 1-2 years. In a deflationary scenario no asset class does well other than U.S bonds, the U.S dollar and the Japanese yen, so better to be safe than sorry with high quality government bonds and fixed deposits. Cash is the king always. Of course this varies with the person's age.