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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, 18 September 2023

Market Signals for the US stock market S and P 500 Index and Indian Stock Market Nifty Index for the Week beginning September 18

 

Asset Class

Weekly Level / Change

Implication for S & P 500

Implication for Nifty*

S & P 500

4450, -0.16%

Neutral

Neutral

Nifty

20192, 1.88%

Neutral **

Bullish

China Shanghai Index

3118, 0.03%

Neutral

Neutral

Gold

1946, 0.15%

Neutral

Neutral

WTIC Crude

90.02, 2.87%

Bullish

Bullish

Copper

3.80, 2.18%

Bullish

Bullish

CRB Index

290, 1.80%

Bullish

Bullish

Baltic Dry Index

1381, 16.44%

Bullish

Bullish

Euro

1.0660, -0.36%

Neutral

Neutral

Dollar/Yen

147.85, 0.03%

Neutral

Neutral

Dow Transports

15339, 0.86%

Bullish

Bullish

Corporate Bonds (ETF)

104.33, -0.37%

Neutral

Neutral

High Yield Bonds (ETF)

91.56, 0.05%

Neutral

Neutral

US 10-year Bond Yield

4.34%, 1.78%

Bearish

Bearish

NYSE Summation Index

-45, -408%

Bearish

Neutral

US Vix

13.79, -0.36%

Neutral

Neutral

Skew

143

Bearish

Bearish

CNN Fear & Greed Index

Neutral

Neutral

Neutral

20 DMA, S & P 500

4454, Below

Bearish

Neutral

50 DMA, S & P 500

4483, Below

Bearish

Neutral

200 DMA, S & P 500

4182, Above

Bullish

Neutral

20 DMA, Nifty

19609, Above

Neutral

Bullish

50 DMA, Nifty

19589, Above

Neutral

Bullish

200 DMA, Nifty

18449, Above

Neutral

Bullish

S & P 500 P/E

25.41

Bearish

Neutral

Nifty P/E

22.80

Neutral

Bearish

India Vix

10.90, 1.14%

Neutral

Bearish

Dollar/Rupee

83.10, 0.12%

Neutral

Neutral

 

 

Overall

 

 

S & P 500

 

 

Nifty

 

Bullish Indications

6

9

Bearish Indications

6

4

 

Outlook

Neutral

Bullish

Observation

 

The S&P 500 was unchanged and the Nifty rallied last week. Indicators are mixed for the week.

Markets are correcting. Watch those stops.

On the Horizon

Eurozone – CPI, UK – CPI, BOE rate decision, US – FOMC 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 was unchanged and the Nifty rose last week. Indicators are mixed for the week. Markets have made lower highs. We are about to correct more on the S&P 500, as we transition from an inflationary regime to a deflationary collapse. The Nifty is close to its recent highs.

The past week saw US equity markets flat. Most emerging markets rose, even as interest rates rose. Transports rebounded after breaking recent lows, which is an ominous sign. The Baltic dry index rose. The dollar rose. Commodities rallied. Valuations continue to be quite expensive, market breadth fell, and the sentiment is now neutral. Fear was unchanged this week, 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 3800 area is emerging on the S&P 500, and 17000 should arrive on the Nifty in the next few months.

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 4460 (up) and 4440 (down) on the S&P 500 and 20250 (up) and 20100 (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, though the 2000 level could act as short-term resistance. (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.

 

 

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Cash - 40%
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Fixed deposit - 20%
Gold - 5%
Stocks - 10% ( Majority of this in dividend funds)
Other Asset Classes - 5%

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.