About

Ahead of the Curve provides analysis and insight into today's global financial markets. The latest news and views from global stock, bond, commodity, and FOREX markets are discussed. Rajveer Rawlin is a PhD and received his MBA in finance from the Cardiff Metropolitan University, Wales, UK. He is an avid market watcher, having followed capital markets in the US and India since 1993. His research interests include capital markets, banking, investment analysis, and portfolio management, and he has over 20 years of experience in the above areas, covering the US and Indian markets. He has several publications in the above areas. He currently teaches business and management students at CHRIST University. The views expressed here are his own and should not be construed as advice to buy or sell securities.

Sunday, 27 September 2020

Market Signals for the US stock market S and P 500 Index and Indian Stock Market Nifty Index for the Week beginning September 28

Indicator	Weekly Level / Change	Implication for S & P 500	Implication for Nifty*
S & P 500	3299, -0.63%	Bearish	Bearish
Nifty	11050, -3.95%	Neutral **	Bearish
China Shanghai Index	3219, -3.56%	Bearish	Bearish
Gold	1864, -4.99%	Bearish	Bearish
WTIC Crude	40.05, -2.58%	Bearish	Bearish
Copper	2.98, -4.44%	Bearish	Bearish
Baltic Dry Index	1605, 23.84%	Bullish	Bullish
Euro	1.1631, -1.74%	Bearish	Bearish
Dollar/Yen	105.62, 1.01%	Bullish	Bullish
Dow Transports	11270, -1.42%	Bearish	Bearish
High Yield (Bond ETF)	103.08, -1.69%	Bearish	Bearish
US 10 year Bond Yield	0.66%, -5.88%	Bullish	Bullish
NYSE Summation Index	6, -97.95%	Bearish	Neutral
US Vix	26.38, 2.13%	Bearish	Bearish
Skew	129	Neutral	Neutral
20 DMA, S and P 500	3382, Below	Bearish	Neutral
50 DMA, S and P 500	3351, Below	Bearish	Neutral
200 DMA, S and P 500	3107, Above	Bullish	Neutral
20 DMA, Nifty	11355, Below	Neutral	Bearish
50 DMA, Nifty	11299, Below	Neutral	Bearish
200 DMA, Nifty	10758, Above	Neutral	Bullish
S & P 500 P/E	28.35	Bearish	Neutral
Nifty P/E	32.12	Neutral	Bearish
India Vix	20.68, 3.14%	Neutral	Bearish
Dollar/Rupee	73.69, 0.20%	Neutral	Neutral
Overall	S & P 500	Nifty
Bullish Indications	4	4
Bearish Indications	13	14
Outlook	Bearish	Bearish
Observation	The S and P and the Nifty fell last week. Indicators are bearish for the week. The markets have begun a great depression style collapse. Watch those stops.
On the Horizon	India – RBI rate decision, Euro Zone – German employment data, CPI, US – Employment data, GDP, UK - GDP

*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 500 and the Nifty fell last week. Indicators are bearish for the coming week. The recent selloff is finally catching up to one of the worst earnings decline periods in stock market history. With extremely high valuations amid a lot of bearish divergences, a September / October crash is on the menu following the small dead cat bounce from the 50dma. Low volatility suggests complacency and more downside ahead.

We rallied 46% right after the great depressions (1930’s) first collapse and we have rallied over 50% in our most recent rally of the lows in a similar 6 month period. After extreme euphoria for the indices, a highly probable selloff to the 3000 area is emerging on the S and P, and 10000 should arrive on the Nifty in short order. The FED is repeating the Japan experiment and the lost 3 decades in Japan (1989-2019) is set to repeat across the globe. SPX 1500 and lower by year-end and we stay there till 2050, scary? The markets are very close to an epic meltdown and the SPX is headed way lower.

The markets are overvalued, overbought and out of touch with economic realities. Long term, the epic meltdown is set to continue resulting in a 5 year plus bear market with lot lower levels may be as low as 800 on the S and P. QE forever from the FED is about to trigger the deflationary collapse of the century and we have made a major top in global equity markets. The market is looking like the short of a lifetime with non-conformations from the transports, other global indices, and commodities. High valuations continue. The breakdown in Crude and the Euro is a precursor to yet another massive drop in the S and P 500.

The recent global virus epidemic (black swan) is likely to dent global GDP significantly and usher in a depression much faster than most think. The trend has changed from bullish to bearish and the markets are getting smashed by a strong dollar. Looking for significant underperformance in the Nifty going forward on rapidly deteriorating macros. A 5-year deflationary wave has started in key asset classes like the Euro, stocks, and commodities amidst several bearish divergences and overstretched valuations.

We are entering a multi-year great depression. The markets are still trading well over 3 standard deviations above their long term averages from which corrections usually result. Tail risk has been very high of late as the yield curve inverts into a recession. The critical levels to watch for the week are 3310 (up) and 3285 (down) on the S & P 500 and 11150 (up) and 11000 (down) on the Nifty. A significant breach of the above levels could trigger the next big move in the above markets. You can check out last week’s report for a comparison. Love your thoughts and feedback.

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My Asset Allocation Strategy (Indian Market)

Cash - 40%
Bonds - 20%
Fixed deposit - 20%
Gold - 5%
Stocks - 10% ( Majority of this in dividend funds)
Other Asset Classes - 5%

My belief is that stocks are relatively overvalued compared to bonds and attractive buying opportunities can come along after 1-2 years. In a deflationary scenario no asset class does well other than U.S bonds, the U.S dollar and the Japanese yen, so better to be safe than sorry with high quality government bonds and fixed deposits. Cash is the king always. Of course this varies with the person's age.