Market Signals for the US stock market S and P 500 Index and Indian Stock Market Nifty Index for the Week beginning December 16

 

Asset Class	Weekly Level / Change	Implication for S & P 500	Implication for Nifty*
S & P 500	6051, -0.64%	Bearish	Bearish
Nifty	24768, 0.37%	Neutral **	Neutral
China Shanghai Index	3392, -0.36%	Neutral	Neutral
Gold	2676, 0.61%	Bullish	Bullish
WTIC Crude	71.29, 6.09%	Bullish	Bullish
Copper	4.20, 0.01%	Neutral	Neutral
CRB Index	294, 2.66%	Bullish	Bullish
Baltic Dry Index	1051, -9.94%	Bearish	Bearish
Euro	1.0502, -0.62%	Bearish	Bearish
Dollar/Yen	153.64, 2.41%	Bullish	Bullish
Dow Transports	16711, -1.00%	Bearish	Neutral
Corporate Bonds (ETF)	108.72, -1.79%	Bearish	Bearish
High Yield Bonds (ETF)	96.43, -0.70%	Bearish	Bearish
US 10-year Bond Yield	4.40%, 6.10%	Bearish	Bearish
NYSE Summation Index	221, -42%	Bearish	Neutral
US Vix	13.81, 8.14%	Bearish	Neutral
S & P 500 Skew	170	Bearish	Neutral
CNN Fear & Greed Index	Neutral	Neutral	Neutral
Nifty MMI Index	Greed	Neutral	Bearish
20 DMA, S & P 500	6009, Above	Bullish	Neutral
50 DMA, S & P 500	5907, Above	Bullish	Neutral
200 DMA, S & P 500	5506, Above	Bullish	Neutral
20 DMA, Nifty	24214, Above	Neutral	Bullish
50 DMA, Nifty	24442, Above	Neutral	Bullish
200 DMA, Nifty	23769, Above	Neutral	Bullish
S & P 500 P/E	30.98	Bearish	Neutral
Nifty P/E	22.80	Neutral	Bearish
India Vix	13.05, -7.69%	Neutral	Bullish
Dollar/Rupee	84.78, 0.13%	Neutral	Neutral
Overall	S & P 500	Nifty
Bullish Indications	7	8
Bearish Indications	11	8
Outlook	Bearish	Neutral
Observation	The S&P fell, and the Nifty rose last week. Indicators are bearish for the week. Markets are topping. Watch those stops.
On the Horizon	Japan – BOJ rate decision, US – GDP, FOMC rate decision Eurozone – CPI, UK- CPI, BOE rate decision
*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 fell, 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 one. The sentiment is neutral, and risk-reward is poor at these levels as divergences develop. Carry trade liquidation may resume even as we enter a seasonally strong period. The Nifty has corrected from recent highs and will likely underperform going forward.

The past week saw US equity markets fall. Most emerging markets were unchanged as interest rates rose. Transports fell. The Baltic dry index fell. The dollar rose. Commodities rallied. Valuations are expensive, market breadth fell, and the sentiment is neutral. Fear (S&P 500) abated.

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 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 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 significant 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 6065 (up) and 6040 (down) on the S&P 500 and 24850 (up) and 24700 (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 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.