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

 

Asset Class	Weekly Level / Change	Implications for S&P 500	Implications for Nifty*
S&P 500	6835, 0.10%	Neutral	Neutral
Nifty	25966, -0.31%	Neutral **	Neutral
China Shanghai Index	3891, 0.03%	Neutral	Neutral
Gold	4387, 1.36%	Bullish	Bullish
WTIC Crude	56.52, -1.26%	Bearish	Bearish
Copper	5.51, 2.82%	Bullish	Bullish
CRB Index	295, -1.07%	Bearish	Bearish
Baltic Dry Index	2023, -8.25%	Bearish	Bearish
Euro	1.1710, -0.26%	Neutral	Neutral
Dollar/Yen	157.76, 1.25%	Bullish	Bullish
Dow Transports	17558, 0.31%	Neutral	Neutral
Corporate Bonds (ETF)	110.13, -0.04%	Neutral	Neutral
High-Yield Bonds (ETF)	96.82, -0.26%	Neutral	Neutral
US 10-year Bond Yield	4.15%, -1.07%	Bullish	Bullish
NYSE Summation Index	223, 6.00%	Bullish	Neutral
US Vix	14.91, -5.27%	Bullish	Neutral
S&P 500 Skew	156	Bearish	Neutral
CNN Fear & Greed Index	Neutral	Neutral	Neutral
Nifty MMI Index	Fear	Neutral	Bullish
20 DMA, S&P 500	6810, Above	Bullish	Neutral
50 DMA, S&P 500	6768, Above	Bullish	Neutral
200 DMA, S&P 500	6242, Above	Bullish	Neutral
20 DMA, Nifty	25994, Below	Neutral	Bearish
50 DMA, Nifty	25820, Above	Neutral	Bullish
200 DMA, Nifty	24784, Above	Neutral	Bullish
S&P 500 P/E	30.83	Bearish	Neutral
Nifty P/E	22.61	Neutral	Bearish
India Vix	9.52, -5.79%	Neutral	Bullish
Dollar/Rupee	89.58, -1.11%	Neutral	Bullish
Overall	S&P 500	Nifty
Bullish Indications	9	9
Bearish Indications	6	5
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	UK – GDP, US – GDP
*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 neutral. 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 massive AI bubble is about to burst. 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 fell on higher interest rates. Transports were unchanged. The Baltic Dry Index fell. The dollar was unchanged. Commodities fell. Valuations are expensive, market breadth rebounded, and the sentiment is neutral. Volatility (S&P 500) fell.

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 as this AI bubble deflates. 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 steepening after 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 6850 (up) and 6820 (down) on the S&P 500 and 26050 (up) and 25900 (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). 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.