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

 

Indicator	Weekly Level / Change	Implication for S & P 500	Implication for Nifty*
S & P 500	4463, 6.16%	Bullish	Bullish
Nifty	17287, 3.95%	Neutral **	Bullish
China Shanghai Index	3251, -1.77%	Bearish	Bearish
Gold	1922, -3.20%	Bearish	Bearish
WTIC Crude	104.99, -3.97%	Bearish	Bearish
Copper	4.72, 2.00%	Bullish	Bullish
Baltic Dry Index	2605, -4.16%	Bearish	Bearish
Euro	1.1051, 1.30%	Bullish	Bullish
Dollar/Yen	119.14, 1.59%	Bullish	Bullish
Dow Transports	16498, 8.30%	Bullish	Bullish
Corporate Bonds (ETF)	121.81, 1.36%	Bullish	Bullish
High Yield Bonds (ETF)	102.70, 1.94%	Bullish	Bullish
US 10-year Bond Yield	2.15%, 5.59%	Bearish	Bearish
NYSE Summation Index	-598, 16.5%	Bullish	Neutral
US Vix	23.87, -22.37%	Bullish	Bullish
Skew	137	Neutral	Neutral
20 DMA, S & P 500	4305, Above	Bullish	Neutral
50 DMA, S & P 500	4433, Above	Bullish	Neutral
200 DMA, S & P 500	4471, Below	Bearish	Neutral
20 DMA, Nifty	16712, Above	Neutral	Bullish
50 DMA, Nifty	17262, Above	Neutral	Bullish
200 DMA, Nifty	16986, Above	Neutral	Bullish
S & P 500 P/E	25.45	Bearish	Neutral
Nifty P/E	22.23	Neutral	Bearish
India Vix	22.61, -10.79%	Neutral	Bullish
Dollar/Rupee	75.97, -0.67%	Neutral	Bullish
Overall	S & P 500	Nifty
Bullish Indications	11	14
Bearish Indications	7	6
Outlook	Bullish	Bullish
Observation	The S and P and the Nifty rallied last week. Indicators are bullish for the week. The markets are correcting. Watch those stops.
On the Horizon	UK – CPI, China – PboC 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 and P and the Nifty were up last week. Indicators are bullish 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 will likely 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. Monthly MACD’s on most global markets have gone negative after a long time. This spells trouble ahead and opens up a significant downside ahead.

We got a bounce that reached the 200 DMA without capitulation. This suggests the lows may not be in. 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 recently. 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 and the transports are leading, 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 4000 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.

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 changing 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.

Tail risk has been very high of late, as yield curves are about to invert yet again reflecting a major recession. The critical levels to watch for the week are 4475 (up) and 4450 (down) on the S & P 500 and 17350 (up) and 17200 (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.