Market Signals for the US stock market S and P 500 Index and Indian Stock Market Nifty Index for the Week beginning December 08

 

Asset Class	Weekly Level / Change	Implications for S&P 500	Implications for Nifty*
S&P 500	6870, 0.31%	Neutral	Neutral
Nifty	26187, -0.06%	Neutral **	Neutral
China Shanghai Index	3903, 0.37%	Neutral	Neutral
Gold	4243, -0.28%	Neutral	Neutral
WTIC Crude	60.08, 2.61%	Bullish	Bullish
Copper	5.46, 3.60%	Bullish	Bullish
CRB Index	306, 1.49%	Bullish	Bullish
Baltic Dry Index	2727, 6.52%	Bullish	Bullish
Euro	1.1643, 0.41%	Neutral	Neutral
Dollar/Yen	155.35, -0.53%	Bearish	Bearish
Dow Transports	17183, 3.60%	Bullish	Bullish
Corporate Bonds (ETF)	110.86, -0.89%	Bearish	Bearish
High-Yield Bonds (ETF)	97.29, -0.37%	Neutral	Neutral
US 10-year Bond Yield	4.14%, 2.99%	Bearish	Bearish
NYSE Summation Index	115, 452.00%	Bullish	Neutral
US Vix	15.41, -5.75%	Bullish	Neutral
S&P 500 Skew	149	Bearish	Neutral
CNN Fear & Greed Index	Fear	Bullish	Neutral
Nifty MMI Index	Greed	Neutral	Bearish
20 DMA, S&P 500	6758, Above	Bullish	Neutral
50 DMA, S&P 500	6744, Above	Bullish	Neutral
200 DMA, S&P 500	6195, Above	Bullish	Neutral
20 DMA, Nifty	26003, Above	Neutral	Bullish
50 DMA, Nifty	25619, Above	Neutral	Bullish
200 DMA, Nifty	24632, Above	Neutral	Bullish
S&P 500 P/E	31.06	Bearish	Neutral
Nifty P/E	22.80	Neutral	Bearish
India Vix	10.32, -11.21%	Neutral	Bullish
Dollar/Rupee	89.95, 0.66%	Neutral	Bearish
Overall	S&P 500	Nifty
Bullish Indications	11	9
Bearish Indications	5	6
Outlook	Bullish	Bullish
Observation	The S&P and the Nifty were unchanged last week. Indicators are bullish for the week. Markets are topping. Watch those stops.
On the Horizon	Japan – GDP, UK – GDP, US – FOMC 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 were unchanged last week. Indicators are bullish for the week. Markets are topping and about to collapse. We are transitioning into a deflationary regime, and the risk of a recession has increased significantly. The sentiment is fearful. Carry trade liquidation is about to resume, and the S&P will likely find resistance soon. The macroenvironment was already deteriorating rapidly even before the recent tariff issue. The recent massive breakdown in transports and rally into resistance (subsequent non-conformation for a possible third time) is quite ominous. Divergences galore. This, combined with oil's recent free fall, has profound recessionary implications. The Nifty is near its recent highs and will likely underperform in the near future.

The past week saw US equity markets unchanged. Most emerging markets rose despite rising interest rates. Transports rose. The Baltic Dry Index rose. The dollar fell. Commodities rose. Valuations are expensive, market breadth rebounded, and the sentiment is fearful. Volatility (S&P 500) declined.

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 closely tracking the 2000 moves down in the S&P 500, implying a panic low is 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 are likely to continue breaking to the downside as earnings growth falters. The Fed is now easing, anticipating a recession. Deflationary busts often begin after major inflationary scares. The Dollar is rebounding from major lows, while commodities and bond yields are flashing significant warning signs.

Global yield curves are in the process of inverting a third time in the last 2 years, reflecting the arrival of a significant economic slowdown. This is a precursor to the next recession, and the riskiest assets are likely to underperform in the future under such conditions. 

The critical levels to watch for the week are 6885 (up) and 6855 (down) on the S&P 500 and 26250 (up) and 26100 (down) on the Nifty. A significant breach of the above levels could trigger the next major move in these 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 (has gone parabolic of late and correcting). Gold exploded almost eight times higher over the decade following the dot-com bust in 2000. Imagine what would happen to gold when this AI bubble bursts. You can check out last week’s report for a comparison. I love your thoughts and feedback.