Market Signals for the US stock market S and P 500 Index and Indian Stock Market Nifty Index for the Week beginning October 11

 

Indicator	Weekly Level / Change	Implication for S & P 500	Implication for Nifty*
S & P 500	4391, 0.79%	Bullish	Bullish
Nifty	17895, 2.07%	Neutral **	Bullish
China Shanghai Index	3592, 0.67%	Bullish	Bullish
Gold	1757, -0.07%	Neutral	Neutral
WTIC Crude	79.58, 4.88%	Bullish	Bullish
Copper	4.28, 2.18%	Bullish	Bullish
Baltic Dry Index	5526, 6.23%	Bullish	Bullish
Euro	1.1569, -0.22%	Neutral	Neutral
Dollar/Yen	112.22, 1.05%	Bullish	Bullish
Dow Transports	14641, 2.74%	Bullish	Bullish
High Yield (Bond ETF)	108.45, -0.69%	Bearish	Bearish
US 10 year Bond Yield	1.61%, 10.42%	Bearish	Bearish
NYSE Summation Index	-82, 12%	Bullish	Neutral
US Vix	18.77, -11.25%	Bullish	Bullish
Skew	135	Neutral	Neutral
20 DMA, S & P 500	4397, Below	Bearish	Neutral
50 DMA, S & P 500	4438, Below	Bearish	Neutral
200 DMA, S & P 500	4154, Above	Bullish	Neutral
20 DMA, Nifty	17648, Above	Neutral	Bullish
50 DMA, Nifty	17030, Above	Neutral	Bullish
200 DMA, Nifty	15475, Above	Neutral	Bullish
S & P 500 P/E	34.25	Bearish	Neutral
Nifty P/E	27.40	Neutral	Bearish
India Vix	15.65, -9.05%	Neutral	Bullish
Dollar/Rupee	75.13, 1.35%	Neutral	Bearish
Overall	S & P 500	Nifty
Bullish Indications	10	13
Bearish Indications	5	4
Outlook	Bullish	Bullish
Observation	The S and P and the Nifty rose last week. Indicators are bullish for the week. The markets have begun a correction. Watch those stops.
On the Horizon	US – CPI, PPI, UK – Employment data, 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 and the Nifty rose last week. Indicators are bullish for the week. Deflation is in the air. The recent 50 DMA break in the S & P 500 looks ominous. 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 top. Tail 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, interest rates, 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 4405(up) and 4380 (down) on the S & P 500 and 17950 (up) and 17800 (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.