Market Signals for the US stock market S and P 500 Index and Indian Stock Market Nifty Index for the Week beginning January 31

 

Indicator	Weekly Level / Change	Implication for S & P 500	Implication for Nifty*
S & P 500	4432, 0.77%	Bullish	Bullish
Nifty	17102, -2.92%	Neutral **	Bearish
China Shanghai Index	3361, -4.57%	Bearish	Bearish
Gold	1790, -2.28%	Bearish	Bearish
WTIC Crude	87.31, 2.55%	Bullish	Bullish
Copper	4.33, -4.56%	Bearish	Bearish
Baltic Dry Index	1381, -2.40%	Bearish	Bearish
Euro	1.1150, -1.68%	Bearish	Bearish
Dollar/Yen	115.22, 1.35%	Bullish	Bullish
Dow Transports	15049, -1.30%	Bearish	Bearish
Corporate Bonds (ETF)	127.70, -0.93%	Bearish	Bearish
High Yield Bonds (ETF)	105.58, -0.95%	Bearish	Bearish
US 10-year Bond Yield	1.78%, 0.32%	Neutral	Neutral
NYSE Summation Index	-549, -225%	Bearish	Neutral
US Vix	27.66, -4.12%	Bullish	Bullish
Skew	133	Neutral	Neutral
20 DMA, S & P 500	4586, Below	Bearish	Neutral
50 DMA, S & P 500	4636, Below	Bearish	Neutral
200 DMA, S & P 500	4435, Below	Bearish	Neutral
20 DMA, Nifty	17771, Below	Neutral	Bearish
50 DMA, Nifty	17436, Below	Neutral	Bearish
200 DMA, Nifty	16623, Above	Neutral	Bullish
S & P 500 P/E	25.27	Bearish	Neutral
Nifty P/E	23.10	Neutral	Bearish
India Vix	20.70, 9.57%	Neutral	Bearish
Dollar/Rupee	75.00, 0.83%	Neutral	Bearish
Overall	S & P 500	Nifty
Bullish Indications	4	5
Bearish Indications	13	14
Outlook	Bearish	Bearish
Observation	The S and P rallied and the Nifty fell last week. Indicators are bearish for the week. The markets have begun a correction. Watch those stops.
On the Horizon	Eurozone – German employment data, CPI, ECB rate decision, US - Employment data, UK - BOE rate decision, India – Union budget 2022
*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 and rallied the Nifty fell last week. Indicators are bearish for the week. Deflation is in the air. Feels like a 2000 style recession trade has begun. The recent rebound may run into resistance. (My views don’t matter, kindly pay attention to the levels). The S&P 500 closed below the 200 DMA for 6 consecutive sessions, after spending a very long time above it. Markets have been making new highs amid loads of divergences and risky assets are breaking to the downside. Earnings revisions have been average, but any upward revisions are already in the price. Typical late-cycle FED put stuff has led to a taper tantrum following the recent taper announcement from the FED 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. 

The transports, the Dollar, market breadth, corporate bonds, and high yield bonds, are still 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 tracking fundamentals and have turned 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 120% 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 4300 area is emerging on the S and P, and 14000 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 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 interest rates are about to plunge yet again reflecting a major recession. The critical levels to watch for the week are 4445 (up) and 4420 (down) on the S & P 500 and 17200 (up) and 17050 (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 getting torched (despite the bullish consensus emerging). Gold is increasingly looking like the asset class to own in the upcoming decade. You can check out last week’s report for a comparison. Love your thoughts and feedback.