Market Signals for the US stock market S and P 500 Index and Indian Stock Market Nifty Index for the Week beginning May 16

 

Indicator	Weekly Level / Change	Implication for S & P 500	Implication for Nifty*
S & P 500	4024, - 2.41%	Bearish	Bearish
Nifty	15782, - 3.83%	Neutral **	Bearish
China Shanghai Index	3084, 2.76%	Bullish	Bullish
Gold	1810, - 3.78%	Bearish	Bearish
WTIC Crude	108.30, - 0.80%	Bearish	Bearish
Copper	4.17, - 1.26%	Bearish	Bearish
Baltic Dry Index	3104, 14.20%	Bullish	Bullish
Euro	1.0412, - 1.32%	Bearish	Bearish
Dollar/Yen	129.21, - 1.03%	Bearish	Bearish
Dow Transports	14456, -2.98%	Bearish	Bearish
Corporate Bonds (ETF)	111.65, 0.76%	Bullish	Bullish
High Yield Bonds (ETF)	95.19, - 1.22%	Bearish	Bearish
US 10-year Bond Yield	2.93%, -6.82%	Bullish	Bullish
NYSE Summation Index	-857, -44%	Bearish	Neutral
US Vix	28.87, -4.37%	Bullish	Bullish
Skew	122	Neutral	Neutral
CNN Fear & Greed	Extreme Fear	Bullish	Bullish
20 DMA, S & P 500	4192, Below	Bearish	Neutral
50 DMA, S & P 500	4331, Below	Bearish	Neutral
200 DMA, S & P 500	4478, Below	Bearish	Neutral
20 DMA, Nifty	16800, Below	Neutral	Bearish
50 DMA, Nifty	16981, Below	Neutral	Bearish
200 DMA, Nifty	17241, Below	Neutral	Bearish
S & P 500 P/E	20.34	Bearish	Neutral
Nifty P/E	19.83	Neutral	Bearish
India Vix	23.49, 10.52%	Neutral	Bearish
Dollar/Rupee	77.49, 0.69%	Neutral	Bearish
Overall	S & P 500	Nifty
Bullish Indications	6	6
Bearish Indications	13	15
Outlook	Bearish	Bearish
Observation	The S and P and the Nifty fell last week. Indicators are bearish for the week. The markets are correcting. Watch those stops.
On the Horizon	UK – Employment data, CPI, Eurozone – CPI, China – PBOC rate decision, 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 and the Chinese Yuan is telegraphing just that. Feels like a 2000 style recession trade has begun, with the start of a decline in risk assets across the board. (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 3800 mark on the S & P in the second half of the week.

We have got bounces without capitulation. This suggests the lows may not be in and the regime is changing from but the dip to sell the rip. Risky assets are breaking to the downside across the board. 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 major inflationary scares. 

The transports led the most recent rebound and are starting to lead the next decline, The Dollar, 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 here.  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 3700 area is emerging on the S and P, and 15000 should arrive on the Nifty in the next few weeks. 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.

Yield curves are about to invert yet again reflecting a major upcoming recession. The critical levels to watch for the week are 4035 (up) and 4010 (down) on the S & P 500 and 15850 (up) and 15700 (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 despite the recent selloff. You can check out last week’s report for a comparison. Love your thoughts and feedback.