Market Signals for the US stock market S and P 500 Index and Indian Stock Market Nifty Index for the Week beginning August 04

 

Asset Class	Weekly Level / Change	Implications for S&P 500	Implications for Nifty*
S&P 500	6238, -2.36%	Bearish	Bearish
Nifty	24565, -1.09%	Neutral **	Bearish
China Shanghai Index	3560, -0.94%	Bearish	Bearish
Gold	3414, 0.68%	Bullish	Bullish
WTIC Crude	67.33, 3.12%	Bullish	Bullish
Copper	4.46, -23.42%	Bearish	Bearish
CRB Index	295, -2.31%	Bearish	Bearish
Baltic Dry Index	2018, -10.59%	Bearish	Bearish
Euro	1.1586, -1.45%	Bearish	Bearish
Dollar/Yen	147.38, -0.28%	Neutral	Neutral
Dow Transports	15104, -7.70%	Bearish	Neutral
Corporate Bonds (ETF)	109.63, 0.59%	Bullish	Bullish
High-Yield Bonds (ETF)	96.35, -0.71%	Bearish	Bearish
US 10-year Bond Yield	4.22%, -3.78%	Bullish	Bullish
NYSE Summation Index	642, -24%	Bearish	Neutral
US Vix	20.38, 36.50%	Bearish	Bearish
S&P 500 Skew	156	Bearish	Neutral
CNN Fear & Greed Index	Neutral	Neutral	Neutral
Nifty MMI Index	Extreme Fear	Neutral	Bullish
20 DMA, S&P 500	6303, Below	Bearish	Neutral
50 DMA, S&P 500	6130, Above	Bullish	Neutral
200 DMA, S&P 500	5901, Above	Bullish	Neutral
20 DMA, Nifty	25075, Below	Neutral	Bearish
50 DMA, Nifty	25052, Below	Neutral	Bearish
200 DMA, Nifty	24062, Above	Neutral	Bullish
S&P 500 P/E	29.74	Bearish	Neutral
Nifty P/E	21.70	Neutral	Bearish
India Vix	11.98, 6.21%	Neutral	Bearish
Dollar/Rupee	87.25, 0.86%	Neutral	Bearish
Overall	S&P 500	Nifty
Bullish Indications	6	6
Bearish Indications	13	14
Outlook	Bearish	Bearish
Observation	The S&P and the Nifty fell last week. Indicators are bearish for the week. Markets are topping again. Watch those stops.
On the Horizon	UK – BOE rate decision, India – RBI 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 and the Nifty fell last week. Indicators are bearish for the week. Markets are topping. We are transitioning into a deflationary regime. The sentiment is neutral. Carry trade liquidation is about to resume, and the S&P will likely find resistance soon. The macro-environment was rapidly deteriorating even before the recent tariff issue. The recent massive breakdown in transports (subsequent non-conformation) is quite ominous. This, combined with the oil's free fall, has profound recessionary implications. The Nifty has corrected significantly from recent highs and will likely end its outperformance soon.

The past week saw US equity markets fall. Most emerging markets fell even as interest rates fell. Transports fell. The Baltic Dry Index fell. The dollar rose. Commodities fell. Valuations are expensive, market breadth fell, and the sentiment is neutral. Volatility (S&P 500) rose.

A currency crisis should resume at any moment and push risky assets to new lows. Deflation is in the air, and bonds are telegraphing just that despite intermittent spikes in yields. 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 rally is a likely catalyst.

The S&P 500 is correcting from 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 as earnings growth falters. The Fed has aggressively tightened into a recession. Deflationary busts often begin after major inflationary scares. The Dollar is at major lows, while commodities and bond yields are flashing significant warning signs.

Global yield curves have inverted a second time after the recent steepening, reflecting the arrival of a significant economic slowdown. Following the recent steepening of the yield curve after the first inversion, this second inversion is complete, and currently, steepening, which 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 6250 (up) and 6225 (down) on the S&P 500 and 24650 (up) and 24500 (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 is a sell on every rise. Gold increasingly looks like the asset class to own over the next decade (currently correcting). Gold exploded almost eight times higher over the decade following the dot-com bust in 2000. Imagine what would happen to gold as this AI bubble bursts. You can check out last week’s report for a comparison. I love your thoughts and feedback.