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Ahead of the Curve provides you with 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 includes areas of Capital Markets, Banking, Investment Analysis and Portfolio Management and has over 20 years of experience in the above areas covering the US and Indian Markets. He has several publications in the above areas. The views expressed here are his own and should not be construed as advice to buy or sell securities.

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Sunday 12 September 2021

Market Signals for the US stock market S and P 500 Index and Indian Stock Market Nifty Index for the Week beginning September 13

 

Indicator

Weekly Level / Change

Implication for

S & P 500

Implication for Nifty*

S & P 500

4459, -1.69%

Bearish

Bearish

Nifty

17369, 0.26%

Neutral **

Neutral

China Shanghai Index

3703, 3.39%

Bullish

Bullish

Gold

1789, -2.46%

Bearish

Bearish

WTIC Crude

69.69, 0.58%

Bullish

Bullish

Copper

4.43, 2.15%

Bullish

Bullish

Baltic Dry Index

3864, -2.03%

Bearish

Bearish

Euro

1.1815, -0.56%

Bearish

Bearish

Dollar/Yen

109.94, 0.19%

Neutral

Neutral

Dow Transports

14367, -2.61%

Bearish

Bearish

High Yield (Bond ETF)

109.71, -0.18%

Neutral

Neutral

US 10 year Bond Yield

1.34%, 1.30%

Bearish

Bearish

NYSE Summation Index

82, -38.00%

Bearish

Neutral

US Vix

20.95, 27.67%

Bearish

Bearish

Skew

151

Bearish

Bearish

20 DMA, S & P 500

4486, Below

Bearish

Neutral

50 DMA, S & P 500

4424, Above

Bullish

Neutral

200 DMA, S & P 500

4082, Above

Bullish

Neutral

20 DMA, Nifty

16867, Above

Neutral

Bullish

50 DMA, Nifty

16283, Above

Neutral

Bullish

200 DMA, Nifty

15034, Above

Neutral

Bullish

S & P 500 P/E

34.78

Bearish

Neutral

Nifty P/E

26.61

Neutral

Bearish

India Vix

13.94, -4.13%

Neutral

Bullish

Dollar/Rupee

73.52, 0.74%

Neutral

Bearish

 

 

Overall

 

 

S & P 500

 

 

Nifty

 

Bullish Indications

5

7

Bearish Indications

11

10

Outlook

Bearish

Bearish

Observation

The S and P fell and the Nifty was unchanged last week. Indicators are bearish for the week.

The markets are about to begin a correction. Watch those stops.

On the Horizon

Eurozone – CPI, UK – Employment data, CPI, US - CPI

*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 fell and the Nifty was unchanged last week. Indicators are bearish for the week. Deflation is in the air. Markets have been making new highs amid loads of divergences and a big move beckons in a seasonally weak period for risk assets. Earnings revisions have 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 topTail risk has skyrocketed with the Skew/Vix ratio recently touching double digits. The market is about to begin 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, market breadth, commodities, and the skew are flashing major warning signs. The epic correction signal is alive and well with retail, hedge funds, and speculators all in, despite the recent melt-up, 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 100% 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 3900 area is emerging on the S and P, and 13000 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) are set to repeat across the globe. SPX 1800 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 that 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 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 about to plunge yet again reflecting a major recession. The critical levels to watch for the week are 4470 (up) and 4445 (down) on the S & P 500 and 17450 (up) and 17300 (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). 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.