Market Signals for the US stock market S and P 500 Index and Indian Stock Market Nifty Index for the Week beginning October 28

 

Asset Class	Weekly Level / Change	Implication for S & P 500	Implication for Nifty*
S & P 500	5808, -0.96%	Bearish	Bearish
Nifty	24181, -2.71%	Neutral **	Bearish
China Shanghai Index	3300, 1.17%	Bullish	Bullish
Gold	2755, 0.90%	Bullish	Bullish
WTIC Crude	71.35, 3.87%	Bullish	Bullish
Copper	4.37, -0.32%	Neutral	Neutral
CRB Index	285, 1.84%	Bullish	Bullish
Baltic Dry Index	1410, -10.53%	Bearish	Bearish
Euro	1.0796, -0.64%	Bearish	Bearish
Dollar/Yen	152.30, 1.86%	Bullish	Bullish
Dow Transports	16104, -1.70%	Bearish	Neutral
Corporate Bonds (ETF)	109.31, -1.30%	Bearish	Bearish
High Yield Bonds (ETF)	96.36, -0.75%	Bearish	Bearish
US 10-year Bond Yield	4.23%, 3.90%	Bearish	Bearish
NYSE Summation Index	635, -27%	Bearish	Neutral
US Vix	20.33, 12.76%	Bearish	Neutral
S & P 500 Skew	149	Bearish	Neutral
CNN Fear & Greed Index	Greed	Bearish	Neutral
Nifty MMI Index	Extreme Fear	Neutral	Bullish
20 DMA, S & P 500	5791, Above	Bullish	Neutral
50 DMA, S & P 500	5683, Above	Bullish	Neutral
200 DMA, S & P 500	5334, Above	Bullish	Neutral
20 DMA, Nifty	24992, Below	Neutral	Bearish
50 DMA, Nifty	25128, Below	Neutral	Bearish
200 DMA, Nifty	23372, Above	Neutral	Bullish
S & P 500 P/E	29.65	Bearish	Neutral
Nifty P/E	22.56	Neutral	Bearish
India Vix	14.63, 12.23%	Neutral	Bearish
Dollar/Rupee	84.10, 0.04%	Neutral	Neutral
Overall	S & P 500	Nifty
Bullish Indications	8	7
Bearish Indications	12	11
Outlook	Bearish	Bearish
Observation	The S&P and the Nifty fell last week. Indicators are bearish for the week. Markets are correcting from resistance. Watch those stops.
On the Horizon	US – GDP, Employment data, Eurozone – German GDP, CPI
*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 and the Nifty fell last week. Indicators are bearish for the week. Markets are correcting from prior highs. We are transitioning from an inflationary regime to a deflationary one. The sentiment is in greed mode, and risk-reward is poor at these levels. Carry trade liquidation may resume as we conclude a seasonally weak period. The Nifty is correcting from recent highs and will likely underperform after an oversold bounce.

The past week saw US equity markets fall. Most emerging markets fell as interest rates rose. Transports fell. The Baltic dry index fell. The dollar rose. Commodities rebounded. Valuations are expensive, market breadth fell, and the sentiment is bullish. Fear (S&P 500) abated even as the reality of the FED pivot kicked in.

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. It 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 significant support is a likely catalyst.

The S&P 500 is correcting from 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 as earnings growth peaks. The Fed has aggressively tightened into a recession. Deflationary busts often begin after major inflationary scares. After correcting significantly, the market has made new highs, and more is left on the downside. The Dollar, commodities, and bond yields are flashing major warning signs.

Global yield curves have steepened after inverting significantly, reflecting a major economic slowdown. 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 5820 (up) and 5795 (down) on the S&P 500 and 24250 (up) and 24100 (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 again and likely be a sell on every rise. Gold increasingly looks like the asset class (though overextended short-term) to own over the next decade. (Gold exploded almost eight times higher over the decade following the dot-com bust in 2000. 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.