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

 

Asset Class	Weekly Level / Change	Implication for S & P 500	Implication for Nifty*
S & P 500	4959, 1.38%	Bullish	Bullish
Nifty	21854, 2.35%	Neutral **	Bullish
China Shanghai Index	2730, -6.19%	Bearish	Bearish
Gold	2057, 1.50%	Bullish	Bullish
WTIC Crude	72.41, -7.18%	Bearish	Bearish
Copper	3.82, -0.86%	Bearish	Bearish
CRB Index	268, -2.13%	Bearish	Bearish
Baltic Dry Index	1407, -7.31%	Bearish	Bearish
Euro	1.0788, -0.59%	Bearish	Bearish
Dollar/Yen	148.40, 0.16%	Neutral	Neutral
Dow Transports	15800, -0.64%	Bearish	Bearish
Corporate Bonds (ETF)	109.61, 0.48%	Neutral	Neutral
High Yield Bonds (ETF)	94.45, -0.59%	Bearish	Bearish
US 10-year Bond Yield	4.02%, -2.79%	Bullish	Bullish
NYSE Summation Index	661, 6%	Bullish	Neutral
US Vix	13.85, 4.45%	Bearish	Bearish
Skew	160	Bearish	Bearish
CNN Fear & Greed Index	Greed	Bearish	Bearish
20 DMA, S & P 500	4831, Above	Bullish	Neutral
50 DMA, S & P 500	4727, Above	Bullish	Neutral
200 DMA, S & P 500	4442, Above	Bullish	Neutral
20 DMA, Nifty	21648, Above	Neutral	Bullish
50 DMA, Nifty	21210, Above	Neutral	Bullish
200 DMA, Nifty	19645, Above	Neutral	Bullish
S & P 500 P/E	26.91	Bearish	Neutral
Nifty P/E	22.51	Neutral	Bearish
India Vix	14.70, 6.00%	Neutral	Bearish
Dollar/Rupee	83.01, -0.13%	Neutral	Neutral
Overall	S & P 500	Nifty
Bullish Indications	7	7
Bearish Indications	11	13
Outlook	Bearish	Bearish
Observation	The S&P 500 and the Nifty rose last week. Indicators are bearish for the week. Markets are topping. Watch those stops.
On the Horizon	Eurozone – German CPI, US – Fed talk, 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 bearish for the week. Markets are topping. We are transitioning from an inflationary regime to a deflationary collapse. The Nifty has started to correct and will likely underperform. We are way overbought short-term and are overdue a pullback here to as low as the 50 DMA, as we enter bearish seasonality.

The past week saw US equity markets rise. Most emerging markets fell, even as interest rates fell. Transports fell. The Baltic dry index fell. The dollar rose. Commodities fell. Tail risk is quite high. Valuations continue to be quite expensive, market breadth rebounded, and the sentiment is now exuberant. Fear rose this week, as a possible reality check from a FED Pivot looms.

After this rally, 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 near its recent highs. We have bounced 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.

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. 

The critical levels to watch for the week are 4970 (up) and 4945 (down) on the S&P 500 and 21950 (up) and 21750 (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 dot-com 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.