Nifty leading up to January 2008 versus the Nifty Today

The chart below contrasts the last 3 months of price action in the Nifty with the price action of the Nifty leading up to the January 2008 crash. We were entering a recession in January 2008 and are already in one today, backed up by hawkish central bank rhetoric globally.

Market Signals for the US stock market S and P 500 Index and Indian Stock Market Nifty Index for the Week beginning September 19

 

Indicator	Weekly Level / Change	Implication for S & P 500	Implication for Nifty*
S & P 500	3873, - 4.77%	Bearish	Bearish
Nifty	17531, - 1.70%	Neutral **	Bearish
China Shanghai Index	3126, - 4.16%	Bearish	Bearish
Gold	1685, - 2.55%	Bearish	Bearish
WTIC Crude	85.40, - 2.34%	Bearish	Bearish
Copper	3.54, - 0.74%	Bearish	Bearish
Baltic Dry Index	1553, 28.03%	Bullish	Bullish
Euro	1.0045, - 0.24%	Neutral	Neutral
Dollar/Yen	142.93, 0.29%	Neutral	Neutral
Dow Transports	12825, - 8.79%	Bearish	Bearish
Corporate Bonds (ETF)	107.10, - 1.18%	Bearish	Bearish
High Yield Bonds (ETF)	91.31, - 2.19%	Bearish	Bearish
US 10-year Bond Yield	3.46%, 4.21%	Bearish	Bearish
NYSE Summation Index	-135, - 296%	Bearish	Neutral
US Vix	26.30, 15.40%	Bearish	Bearish
Skew	118	Neutral	Neutral
CNN Fear & Greed	Fear	Bullish	Bullish
20 DMA, S & P 500	4024, Below	Bearish	Neutral
50 DMA, S & P 500	4042, Below	Bearish	Neutral
200 DMA, S & P 500	4258, Below	Bearish	Neutral
20 DMA, Nifty	17683, Below	Neutral	Bearish
50 DMA, Nifty	17191, Above	Neutral	Bullish
200 DMA, Nifty	16981, Above	Neutral	Bullish
S & P 500 P/E	19.57	Bearish	Neutral
Nifty P/E	20.93	Neutral	Bearish
India Vix	19.82, 11.88%	Neutral	Bearish
Dollar/Rupee	79.69, 0.07%	Neutral	Neutral
Overall	S & P 500	Nifty
Bullish Indications	2	4
Bearish Indications	15	14
Outlook	Bearish	Bearish
Observation	The S and P and the Nifty fell last week. Indicators are bearish for the week. The markets are failing at resistance. Watch those stops.
On the Horizon	UK – BOE rate decision, US – FOMC rate decision
*Nifty	India’s Benchmark Stock Market Index
Raw Data	Courtesy Stock charts, investing.com, multpl.com, NSE
**Neutral	Changes less than 0.5% are considered neutral

 

The S and P and the Nifty fell last week. Indicators are bearish for the week. We have been selling off from resistance near the 200 DMA on the S & P and the sell-off is likely to continue with bounces being sold into. The past week saw a fall in global markets, with a continued rise in interest rates. Transports are leading on the downside after making new recent lows. The Baltic dry index rebounded after absolutely cratering in the last few weeks. The dollar gained anticipating a hawkish FED next week. Crude continues to underperform. The Nifty which has been out-performing will likely catch up with other assets on the downside soon. Valuations are expensive, market breadth is weakening, and the sentiment is back to negative.

The upcoming currency crisis should push risky assets to new lows across the board. Deflation is in the air despite the recent inflationary spike and the Chinese Yuan, Euro, government bonds, and commodities are telegraphing just that. Feels like a 2000-style recession trade has begun, with a decline in risk assets across the board. (My views don’t matter, kindly pay attention to the levels).

The S&P 500 is below the 200 DMA and recently failed at this important mark, after spending a very long time above it, and its 200 DMA is declining. Monthly MACDs on most global markets are still negative. This spells trouble and opens up significant downside risk ahead.

We have got bounces without capitulation. This suggests the lows may not be in and the regime is changing from buying the dip to selling the rip. We may get a final flush down soon. Risky assets are breaking to the downside across the board. Downward earnings revisions are likely soon.

The Fed is aggressively tightening into a recession. Tail risk while moderating is still high.  Deflationary busts often begin after major inflationary scares. The market has corrected significantly and more is left on the downside.

The Dollar, commodities, transports, and, bond yields are continuing to flash major warning signs despite the recent counter-trend move up. The epic correction signal occurred with retail, hedge funds, and speculators all in, in the recent melt-up in January, suggesting a major top is in. The moment of reckoning is here.  Technicals are tracking fundamentals and have recently turned bearish. With extremely high valuations, a crash is on the menu. Extremely low volatility suggests complacency and downside ahead.

We rallied 46% right after the Great Depression (the 1930s) first collapse and we have rallied over 120% in our most recent rally of the lows in the last 2-year period. After extreme euphoria for the indices, a highly probable selloff to the 3500 area is emerging on the S and P, and 15000 should arrive on the Nifty in the next few months. Central banks are repeating the Japan experiment and the 3 lost decades in Japan (1989-2019) are set to repeat across the globe. 

The trend has changed from bullish to bearish and the markets are getting a reality check and getting smashed by rising rates and a strong dollar. Looking for significant underperformance in the Nifty going forward on rapidly deteriorating macros. Yield curves are inverting yet again reflecting a major upcoming recession. 

The critical levels to watch for the week are 3885 (up) and 3860 (down) on the S & P 500 and 17600 (up) and 17450 (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 yet again and will likely prove to be a sell on every rise. Gold is increasingly looking like the asset class to own in the upcoming decade despite the recent selloff. You can check out last week’s report for a comparison. Love your thoughts and feedback.