Market Signals for the US stock market S and P 500 Index and Indian Stock Market Nifty Index for the Week beginning July 03

 

Asset Class	Weekly Level / Change	Implication for S & P 500		Implication for Nifty*
S & P 500	4450, 2.35%	Bullish	Bullish
Nifty	19189, 2.80%	Neutral **	Bullish
China Shanghai Index	3202, 0.13%	Neutral	Neutral
Gold	1928, -0.01%	Neutral	Neutral
WTIC Crude	70.45, 1.87%	Bullish	Bullish
Copper	3.76, -1.35%	Bearish	Bearish
CRB Index	262, -0.38%	Neutral	Neutral
Baltic Dry Index	1091, -12.02%	Bearish	Bearish
Euro	1.0912, 0.21%	Neutral	Neutral
Dollar/Yen	144.30 0.43%	Neutral	Neutral
Dow Transports	15530, 5.73%	Bullish	Bullish
Corporate Bonds (ETF)	108.14, 0.41%	Neutral	Neutral
High Yield Bonds (ETF)	92.03, 1.24%	Bullish	Bullish
US 10-year Bond Yield	3.84%, 2.79%	Bearish	Bearish
NYSE Summation Index	264, 48%	Bullish	Bullish
US Vix	13.59, 1.12%	Bearish	Bearish
Skew	150	Bearish	Bearish
CNN Fear & Greed Index	Extreme Greed	Bearish	Bearish
20 DMA, S & P 500	4352, Above	Bullish	Neutral
50 DMA, S & P 500	4226, Above	Bullish	Neutral
200 DMA, S & P 500	4002, Above	Bullish	Neutral
20 DMA, Nifty	18739, Above	Neutral	Bullish
50 DMA, Nifty	18411, Above	Neutral	Bullish
200 DMA, Nifty	17955, Above	Neutral	Bullish
S & P 500 P/E	25.76	Bearish	Neutral
Nifty P/E	22.36	Neutral	Bearish
India Vix	10.80, -3.87%	Neutral	Bullish
Dollar/Rupee	82.10, 0.14%	Neutral	Neutral
Overall	S & P 500	Nifty
Bullish Indications	8	10
Bearish Indications	7	7
Outlook	Bullish	Bullish
Observation	The S&P 500 and the Nifty rallied last week. Indicators are bullish for the week. The markets have gone parabolic. Watch those stops.
On the Horizon	US – Employment data
*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 rallied last week. Indicators are bullish for the week. We are making new highs on the S&P 500, as we transition from an inflationary regime to a deflationary collapse. The Nifty is also at new highs.

The past week saw US equity markets rise. Most emerging markets rose, even as interest rates rose. Transports led the move up. The Baltic dry index fell significantly. The dollar was unchanged. Commodities were unchanged. Valuations continue to be quite expensive, market breadth rose, and the sentiment is now extremely bullish. Fear has collapsed, as a possible reality check from a FED Pivot 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 2000 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 4465 (up) and 4435 (down) on the S&P 500 and 19250 (up) and 19100 (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 (Gold exploded almost 8 times higher over the decade following the dotcom bust in 2000, just imagine what would happen when this AI bubble bursts? following the recent crypto bubble burst) You can check out last week’s report for a comparison. Love your thoughts and feedback.