Market Signals for the US stock market S and P 500 Index and Indian Stock Market Nifty Index for the Week beginning July 22

 

Asset Class	Weekly Level / Change	Implication for S & P 500	Implication for Nifty*
S & P 500	5505, -1.97%	Bearish	Bearish
Nifty	24531, 0.12%	Neutral **	Neutral
China Shanghai Index	2982, 0.37%	Neutral	Neutral
Gold	2403, -0.74%	Bearish	Bearish
WTIC Crude	78.60, -2.99%	Bearish	Bearish
Copper	4.24, -7.76%	Bearish	Bearish
CRB Index	280, -3.47%	Bearish	Bearish
Baltic Dry Index	1912, -4.26%	Bearish	Bearish
Euro	1.0885, -0.19%	Neutral	Neutral
Dollar/Yen	157.48, -0.26%	Neutral	Neutral
Dow Transports	15784, 1.68%	Bullish	Neutral
Corporate Bonds (ETF)	108.38, -0.72%	Bearish	Bearish
High Yield Bonds (ETF)	95.21, -0.03%	Neutral	Neutral
US 10-year Bond Yield	4.24%, 1.19%	Bearish	Bearish
NYSE Summation Index	561, 75%	Bullish	Neutral
US Vix	16.52, 32.58%	Bearish	Neutral
S & P 500 Skew	147	Bearish	Neutral
CNN Fear & Greed Index	Neutral	Neutral	Neutral
Nifty MMI Index	Greed	Neutral	Bearish
20 DMA, S & P 500	5541, Below	Bearish	Neutral
50 DMA, S & P 500	5410, Above	Bullish	Neutral
200 DMA, S & P 500	4951, Above	Bullish	Neutral
20 DMA, Nifty	24215, Above	Neutral	Bullish
50 DMA, Nifty	23357, Above	Neutral	Bullish
200 DMA, Nifty	21719, Above	Neutral	Bullish
S & P 500 P/E	28.76	Bearish	Neutral
Nifty P/E	23.31	Neutral	Bearish
India Vix	14.83, 8.01%	Neutral	Bearish
Dollar/Rupee	83.73, 0.26%	Neutral	Neutral
Overall	S & P 500	Nifty
Bullish Indications	4	3
Bearish Indications	12	11
Outlook	Bearish	Bearish
Observation	The S&P fell and the Nifty was unchanged last week. Indicators are bearish for the week. Markets are correcting from resistance. Watch those stops.
On the Horizon	US – GDP, India – Union Budget 2024
*Nifty	India’s Benchmark Stock Market Index
Raw Data	Data courtesy stockcharts.com, investing.com, multpl.com, nseindia.com, tickertape.in
**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 correcting among developing divergences. We are transitioning from an inflationary regime to a deflationary collapse. The markets are close to life highs and risk-reward is poor at these levels. The Nifty is also near new highs and will likely underperform.

The past week saw US equity markets fall. Most emerging markets fell, as interest rates rose. Transports rose. The Baltic dry index fell. The dollar was unchanged. Commodities fell. Valuations continue to be expensive, market breadth rose, and the sentiment is now neutral. Fear (S&P 500) rose this week, as a possible reality check from a FED Pivot loom.

After this rally, a currency crisis should resume and push risky assets to new lows. Despite the recent inflationary spike, deflation is in the air 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 rally is a likely catalyst.

The S&P 500 is near all-time 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 earnings growth peaks.

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

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 5520 (up) and 5490 (down) on the S&P 500 and 24600 (up) and 24450 (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, (though overextended short-term) 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.