Market Signals for the US stock market S and P 500 Index and Indian Stock Market Nifty Index for the Week beginning May 09

 

Indicator	Weekly Level / Change	Implication for S & P 500	Implication for Nifty*
S & P 500	4123, -0.21%	Neutral	Neutral
Nifty	16411, - 4.04%	Neutral **	Bearish
China Shanghai Index	3002, - 1.49%	Bearish	Bearish
Gold	1883, -1.51%	Bearish	Bearish
WTIC Crude	110.61, 5.65%	Bullish	Bullish
Copper	4.25, - 3.69%	Bearish	Bearish
Baltic Dry Index	2718, 13.06%	Bullish	Bullish
Euro	1.0548, 0.07%	Neutral	Neutral
Dollar/Yen	130.57, 0.57%	Bullish	Bullish
Dow Transports	14901, 0.24%	Neutral	Neutral
Corporate Bonds (ETF)	110.81, - 1.59%	Bearish	Bearish
High Yield Bonds (ETF)	96.37, - 1.27%	Bearish	Bearish
US 10-year Bond Yield	3.14%, 7.10%	Bearish	Bearish
NYSE Summation Index	-595, -22%	Bearish	Neutral
US Vix	30.19, -9.61%	Bullish	Bullish
Skew	128	Neutral	Neutral
CNN Fear & Greed	Fear	Bullish	Bullish
20 DMA, S & P 500	4305, Below	Bearish	Neutral
50 DMA, S & P 500	4370, Below	Bearish	Neutral
200 DMA, S & P 500	4489, Below	Bearish	Neutral
20 DMA, Nifty	17206, Below	Neutral	Bearish
50 DMA, Nifty	17061, Below	Neutral	Bearish
200 DMA, Nifty	17235, Below	Neutral	Bearish
S & P 500 P/E	20.84	Bearish	Neutral
Nifty P/E	20.89	Neutral	Bearish
India Vix	21.25, 9.45%	Neutral	Bearish
Dollar/Rupee	76.95, 0.57%	Neutral	Bearish
Overall	S & P 500	Nifty
Bullish Indications	5	5
Bearish Indications	11	13
Outlook	Bearish	Bearish
Observation	The S and P was unchanged and the Nifty fell last week. Indicators are bearish for the week. The markets are correcting. Watch those stops.
On the Horizon	UK – GDP, US – CPI
*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 fell last week. Indicators are bearish for the week. Deflation is in the air despite the recent inflationary spike and the Chinese Yuan is telegraphing just that. Feels like a 2000 style recession trade has begun, with the increased possibility of a waterfall decline in risk assets soon. (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, and the 200 DMA has started to decline. Monthly MACD’s on most global markets have gone negative after a long time. This spells trouble ahead and opens up significant downside risk ahead. We could continue the selloff in the markets this week, with a likely short-term bottom near the 3900 mark on the S & P.

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 top. Tail 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 most recent rebound and are starting to lead the next decline, The Dollar, tail risk, market breadth, and bond yields, are continuing to flash 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 3800 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 has changed 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 4135 (up) and 4110 (down) on the S & P 500 and 16500 (up) and 16300 (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 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.