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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 5 June 2023

Market Signals for the US stock market S and P 500 Index and Indian Stock Market Nifty Index for the Week beginning June 05

 

Asset Class

Weekly Level / Change

Implication for S & P 500

Implication for Nifty*

S & P 500

4282, 1.83%

Bullish

Bullish

Nifty

18534, 0.19%

Neutral **

Neutral

China Shanghai Index

3230, 0.55%

Bullish

Bullish

Gold

1964, 0.14%

Neutral

Neutral

WTIC Crude

71.87, -1.84%

Bearish

Bearish

Copper

3.73, 1.58%

Bullish

Bullish

CRB Index

260, -0.39%

Neutral

Neutral

Baltic Dry Index

919, -21.59%

Bearish

Bearish

Euro

1.0708, -0.15%

Neutral

Neutral

Dollar/Yen

139.97, -0.46%

Neutral

Neutral

Dow Transports

14151, 1.78%

Bullish

Bullish

Corporate Bonds (ETF)

107.31, 0.79%

Bullish

Bullish

High Yield Bonds (ETF)

91.38, 0.66%

Bullish

Bullish

US 10-year Bond Yield

3.70%, -3.17%

Bullish

Bullish

NYSE Summation Index

-145, 10%

Bullish

Neutral

US Vix

14.60, -18.66%

Bullish

Bullish

Skew

143

Bearish

Bearish

CNN Fear & Greed Index

Greed

Bearish

Bearish

20 DMA, S & P 500

4164, Above

Bullish

Neutral

50 DMA, S & P 500

4123, Above

Bullish

Neutral

200 DMA, S & P 500

3975, Above

Bullish

Neutral

20 DMA, Nifty

18361, Above

Neutral

Bullish

50 DMA, Nifty

17890, Above

Neutral

Bullish

200 DMA, Nifty

17850, Above

Neutral

Bullish

S & P 500 P/E

24.79

Bearish

Neutral

Nifty P/E

21.58

Neutral

Bearish

India Vix

11.13, -6.51%

Neutral

Bullish

Dollar/Rupee

82.40, -0.20%

Neutral

Neutral

 

 

Overall

 

 

S & P 500

 

 

Nifty

 

Bullish Indications

12

12

Bearish Indications

5

5

 

Outlook

Bullish

Bullish

Observation

 

The S&P 500 and the Nifty rallied last week. Indicators are bullish for the week.

The markets are at major resistance, with glaring divergences. Watch those stops.

On the Horizon

Japan – GDP, 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&P 500 and the Nifty rose last week. Indicators are bullish for the week. We are back above resistance near the 50 and 200 DMAs on the S&P 500, as we transition from an inflationary regime to a deflationary collapse. The Nifty is above the 20 WMA close to 17800.

The past week saw US equity markets rise. Most emerging markets rose, as interest rates fell. Transports rose. The Baltic dry index fell hard. The dollar was unchanged. Commodities were little changed. Valuations continue to be quite expensive, market breadth rose, and the sentiment is now bullish. Fear has collapsed, as a possible reality check from the debt ceiling agreement looms.

The recent currency crisis should resume and push risky assets to new lows across the board. Deflation is in the air despite the recent inflationary spike and bonds are telegraphing just that. Feels like a 2008-style recession trade has begun, with a potential for a decline in risk assets across the board. The current market is tracking closely the 1973/2008 moves down in the S&P 500, implying a panic low right ahead in the upcoming months (My views do not matter, kindly pay attention to the levels). A dollar rebound from major support is a likely catalyst.

The S&P 500 is encountering resistance near its recent highs. We have got bounces from recent lows without capitulation. This suggests the lows may not be in and the regime has changed from buying the dip to selling the rip. We may get a final flush down soon. Risky assets should continue breaking to the downside across the board, as downward earnings revisions are underway.

The Fed has aggressively tightened into a recession. Deflationary busts often begin after major inflationary scares. The market has rebounded after correcting significantly, and more is left on the downside. The Dollar, commodities, and bond yields are continuing to flash major warning signs.

The epic correction signal occurred with retail, hedge funds, and speculators all in, in January 2022, suggesting a major top is in. The moment of reckoning is here. With extremely high valuations, a crash is on the menu. Low volatility suggests complacency and downside ahead.

We rallied 46% right after the Great Depression (the 1930s) first collapse and we rallied over 120% in our most recent rally of the COVID-19 lows. After extreme euphoria for the indices, a highly probable selloff to the 3600 area is emerging on the S&P 500, and 16000 should arrive on the Nifty in the next few months.

The trend has changed from bullish to bearish and markets risk getting a reality check and smashed by contagion risk from an economic slowdown and a strong dollar. Global yield curves have inverted significantly reflecting a major upcoming recession. The recent steepening of the yield curve, within an inverted context, with rates falling, is a precursor to the next recession, and most risky assets will underperform going forward under such conditions. Looking for significant underperformance in the Nifty going forward on challenging macros.

The critical levels to watch for the week are 4295 (up) and 4270 (down) on the S&P 500 and 18600 (up) and 18450 (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 will get torched yet again and will likely prove to be a sell on every rise. Gold is increasingly looking like the asset class to own over the next decade. You can check out last week’s report for a comparison. Love your thoughts and feedback.

 

 

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Cash - 40%
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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.