Market Signals for the US stock market S and P 500 Index and Indian Stock Market Nifty Index for the Week beginning June 21

 

Indicator	Weekly Level / Change	Implication for S & P 500	Implication for Nifty*
S & P 500	4167, -1.91%	Bearish	Bearish
Nifty	15683, -0.73%	Neutral **	Bearish
China Shanghai Index	3525, -1.80%	Bearish	Bearish
Gold	1764, -6.13%	Bearish	Bearish
WTIC Crude	71.29, 0.54%	Bullish	Bullish
Copper	4.12,-9.19%	Bearish	Bearish
Baltic Dry Index	3218, 12.64%	Bullish	Bullish
Euro	1.1863, -2.01%	Bearish	Bearish
Dollar/Yen	110.24, 0.53%	Bullish	Bullish
Dow Transports	14623, -4.60%	Bearish	Bearish
High Yield (Bond ETF)	109.26, -0.21%	Neutral	Neutral
US 10 year Bond Yield	1.44%, -1.18%	Bullish	Bullish
NYSE Summation Index	769, -8.72%	Bearish	Neutral
US Vix	20.70, 32.27%	Bearish	Bearish
Skew	151	Bearish	Bearish
20 DMA, S & P 500	4212, Below	Bearish	Neutral
50 DMA, S & P 500	4182, Below	Bearish	Neutral
200 DMA, S & P 500	3799, Above	Bullish	Neutral
20 DMA, Nifty	15603, Above	Neutral	Bullish
50 DMA, Nifty	15063, Above	Neutral	Bullish
200 DMA, Nifty	13756, Above	Neutral	Bullish
S & P 500 P/E	44.26	Bearish	Neutral
Nifty P/E	29.08	Neutral	Bearish
India Vix	14.80, 4.93%	Neutral	Bearish
Dollar/Rupee	74.12, 1.20%	Neutral	Bearish
Overall	S & P 500	Nifty
Bullish Indications	5	7
Bearish Indications	12	12
Outlook	Bearish	Bearish
Observation	The S and P and the Nifty fell last week. Indicators are bearish for the week. The markets are beginning a correction. Watch those stops.
On the Horizon	US - GDP, China – PBOC rate decision, UK – BOE 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 & P 500 and the Nifty fell last week. Indicators are bearish for the week. Earnings growth in the recent quarter has been very good but it is already in the price. Typical late-cycle FED put stuff is leading to a taper tantrum and an imminent top. Tail risk has skyrocketed with the Skew/Vix ratio recently touching double digits. The market has begun an epic correction. Deflationary busts often begin after inflationary scares (the market is calling the Fed’s bluff) and long bonds are telegraphing just that. Transports, the Dollar, and the skew are flashing major warning signs. The epic crash signal is alive and well with retail, hedge funds, and speculators all in, despite the recent melt-up and break out of the long-term broadening top, suggesting a major top is imminent. The moment of reckoning is very near.  Technicals are about to track fundamentals and turn bearish. The market is yet to price in one of the worst earnings decline periods in stock market history. 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 depressions (1930’s) first collapse and we have rallied over 90% in our most recent rally of the lows in the last 12 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 the next few months. The FED is repeating the Japan experiment and the 3 lost decades in Japan (1989-2019) is set to repeat across the globe. SPX 1500 and lower in a year and we stay there till 2030, 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 eventually as low as 800 on the S and P. QE forever from the FED is about to trigger the deflationary collapse of the century as we make a major top in global equity markets. The market is looking like the short of a lifetime with topping action in the transports, other global indices, and commodities. High valuations continue.

The recent global virus epidemic (black swan) has dented global GDP significantly and will usher in a depression much faster than most think. The trend is about to change from bullish to bearish and the markets are about to get smashed by a rebounding 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 interest rates are plunging yet again reflecting a major recession. The critical levels to watch for the week are 4180 (up) and 4155 (down) on the S & P 500 and 15750 (up) and 15600 (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 is about to get torched soon (despite the bullish consensus emerging). Gold will likely prove to be the best asset class over the next 5 years. You can check out last week’s report for a comparison. Love your thoughts and feedback.