Market Signals for the US stock market S and P 500 Index and Indian Stock Market Nifty Index for the Week beginning October 02

 

Asset Class	Weekly Level / Change	Implication for S & P 500	Implication for Nifty*
S & P 500	4288, -0.74%	Bearish	Bearish
Nifty	19638, -0.18%	Neutral **	Neutral
China Shanghai Index	3110, -0.70%	Bearish	Bearish
Gold	1865, -4.16%	Bearish	Bearish
WTIC Crude	90.77, 0.82%	Bullish	Bullish
Copper	3.73, 1.03%	Bullish	Bullish
CRB Index	285, -0.51%	Bearish	Bearish
Baltic Dry Index	1701, 5.39%	Bullish	Bullish
Euro	1.0572, -0.75%	Bearish	Bearish
Dollar/Yen	149.38, 0.68%	Bullish	Bullish
Dow Transports	14968, -0.13%	Neutral	Neutral
Corporate Bonds (ETF)	102.02, -1.75%	Bearish	Bearish
High Yield Bonds (ETF)	90.40, -0.40%	Neutral	Neutral
US 10-year Bond Yield	4.58%, 3.18%	Bearish	Bearish
NYSE Summation Index	-412, -109%	Bearish	Neutral
US Vix	17.52, 1.86%	Bearish	Bearish
Skew	135	Neutral	Neutral
CNN Fear & Greed Index	Fear	Bullish	Bullish
20 DMA, S & P 500	4409, Below	Bearish	Neutral
50 DMA, S & P 500	4453, Below	Bearish	Neutral
200 DMA, S & P 500	4200, Above	Bullish	Neutral
20 DMA, Nifty	19786, Below	Neutral	Bearish
50 DMA, Nifty	19626, Above	Neutral	Bullish
200 DMA, Nifty	18498, Above	Neutral	Bullish
S & P 500 P/E	24.48	Bearish	Neutral
Nifty P/E	22.20	Neutral	Bearish
India Vix	11.45, 7.43%	Neutral	Bearish
Dollar/Rupee	83.18, 0.25%	Neutral	Neutral
Overall	S & P 500	Nifty
Bullish Indications	6	7
Bearish Indications	12	11
Outlook	Bearish	Bearish
Observation	The S&P 500 fell and the Nifty was unchanged last week. Indicators are bearish for the week. Markets are correcting. Watch those stops.
On the Horizon	US – Employment data, 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 fell and the Nifty was little changed last week. Indicators are bearish for the week. Markets are oversold and are likely to find a short term bottom soon that will produce a meaningful rally. We are transitioning from an inflationary regime to a deflationary collapse. The Nifty is correcting from its recent highs.

The past week saw US equity markets fall. Most emerging markets fell, as interest rates rose. Transports are close to recent lows, which is an ominous sign. The Baltic dry index rose. The dollar rose. Commodities fell. Valuations continue to be quite expensive, market breadth fell, and the sentiment is now bearish. Fear rose 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 the riskiest 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 4300 (up) and 4275 (down) on the S&P 500 and 19750 (up) and 19550 (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.