Market Signals for the US stock market S and P 500 Index and Indian Stock Market Nifty Index for the Week beginning March 07

 

Indicator	Weekly Level / Change	Implication for S & P 500	Implication for Nifty*
S & P 500	4329, -1.27%	Bearish	Bearish
Nifty	16245, -2.48%	Neutral **	Bearish
China Shanghai Index	3448, -0.11%	Neutral	Neutral
Gold	1974, 4.59%	Bullish	Bullish
WTIC Crude	115.03, 25.59%	Bullish	Bullish
Copper	4.92, 9.64%	Bullish	Bullish
Baltic Dry Index	2148, 3.47%	Bullish	Bullish
Euro	1.0925, -3.04%	Bearish	Bearish
Dollar/Yen	114.83, -0.64%	Bearish	Bearish
Dow Transports	15392, 1.22%	Bullish	Bullish
Corporate Bonds (ETF)	123.64, 0.13%	Neutral	Neutral
High Yield Bonds (ETF)	102.83, -1.34%	Bearish	Bearish
US 10-year Bond Yield	1.74%, -8.29%	Bullish	Bullish
NYSE Summation Index	-679, 6.24%	Bullish	Neutral
US Vix	31.98, 15.91%	Bearish	Bearish
Skew	135	Neutral	Neutral
20 DMA, S & P 500	4403, Below	Bearish	Neutral
50 DMA, S & P 500	4530, Below	Bearish	Neutral
200 DMA, S & P 500	4466, Below	Bearish	Neutral
20 DMA, Nifty	17048, Below	Neutral	Bearish
50 DMA, Nifty	17389, Below	Neutral	Bearish
200 DMA, Nifty	16923, Below	Neutral	Bearish
S & P 500 P/E	24.68	Bearish	Neutral
Nifty P/E	20.89	Neutral	Bearish
India Vix	27.96, 4.55%	Neutral	Bearish
Dollar/Rupee	76.42, 1.81%	Neutral	Bearish
Overall	S & P 500	Nifty
Bullish Indications	7	6
Bearish Indications	8	12
Outlook	Bearish	Bearish
Observation	The S and P and the Nifty fell last week. Indicators are bearish for the week. The markets are correcting. Watch those stops.
On the Horizon	US - CPI, Eurozone – ECB rate decision, UK – GDP, Japan - 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 fell last week. Indicators are bearish for the week. Deflation is in the air despite the recent inflationary spike. Feels like a 2000 style recession trade has begun. The recent rebound has run into resistance. (My views don’t matter, kindly pay attention to the levels). The S&P 500 closed below the 200 DMA recently, after spending a very long time above it. This spells trouble ahead and opens up significant downside ahead, which should at least test the recent lows near 4215 on the S &P, the first retest held but the jury is still out on whether further retests will hold. We may get a dead cat bounce that fails at the 200 DMA soon. 

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 significant upward revisions appear unlikely. Typical late-cycle FED put stuff has led to a taper tantrum following the recent taper announcement from the FED and a likely 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. 

While tail risk has abated a bit, 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 may be in. 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 2-year period. After extreme euphoria for the indices, a highly probable selloff to the 4300 area is emerging on the S and P, and 15000 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 4340 (up) and 4315 (down) on the S & P 500 and 16300 (up) and 16150 (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 as expected. 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.