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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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Monday 23 May 2022

Market Signals for the US stock market S and P 500 Index and Indian Stock Market Nifty Index for the Week beginning May 23

Indicator

Weekly Level / Change

Implication for

S & P 500

Implication for Nifty*

S & P 500

3901, - 3.05%

Bearish

Bearish

Nifty

16266, 3.07%

Neutral **

Bullish

China Shanghai Index

3147, 2.02%

Bullish

Bullish

Gold

1845, 2.04%

Bullish

Bullish

WTIC Crude

110.35, - 0.13%

Neutral

Neutral

Copper

4.30, 3.09%

Bullish

Bullish

Baltic Dry Index

3344, 7.73%

Bullish

Bullish

Euro

1.0562, 1.45%

Bullish

Bullish

Dollar/Yen

127.86, - 1.03%

Bearish

Bearish

Dow Transports

13491, -6.68%

Bearish

Bearish

Corporate Bonds (ETF)

112.42, 0.69%

Bullish

Bullish

High Yield Bonds (ETF)

94.70, - 0.51%

Bearish

Bearish

US 10-year Bond Yield

2.79%, - 5.24%

Bullish

Bullish

NYSE Summation Index

-847, 1.1%

Bullish

Neutral

US Vix

29.43, 1.94%

Bearish

Bearish

Skew

122

Neutral

Neutral

CNN Fear & Greed

Extreme Fear

Bullish

Bullish

20 DMA, S & P 500

4084, Below

Bearish

Neutral

50 DMA, S & P 500

4303, Below

Bearish

Neutral

200 DMA, S & P 500

4467, Below

Bearish

Neutral

20 DMA, Nifty

16514, Below

Neutral

Bearish

50 DMA, Nifty

16949, Below

Neutral

Bearish

200 DMA, Nifty

17248, Below

Neutral

Bearish

S & P 500 P/E

19.72

Bearish

Neutral

Nifty P/E

20.05

Neutral

Bearish

India Vix

23.10, - 1.64%

Neutral

Bullish

Dollar/Rupee

77.82, 0.45%

Neutral

Neutral

 

 

Overall

 

 

S & P 500

 

 

Nifty

 

Bullish Indications

9

10

Bearish Indications

9

9

Outlook

Neutral

Bullish

Observation

The S and P fell and the Nifty rallied last week. Indicators are mixed for the week.

The markets are correcting. Watch those stops.

On the Horizon

US – GDP, FOMC minutes, Eurozone – German 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 fell and the Nifty rallied last week. Indicators are mixed for the week. Deflation is in the air despite the recent inflationary spike and the Chinese Yuan is telegraphing just that. Feels like a 2000-style recession trade has begun, with a decline in risk assets across the board. (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, and its 200 DMA has started to decline. Monthly MACDs on most global markets have gone negative after quite a long time. This spells trouble ahead and opens up significant downside risk ahead. We likely have a short-term bottom near the 3800 mark on the S & P, though no panic yet. Once a meaningful bottom is made a 250-point rally on the S & P 500 is likely.

We have got bounces without capitulation. This suggests the lows may not be in and the regime is changing from buy the dip to sell the rip. Risky assets are breaking to the downside across the board. 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 topTail risk has skyrocketed recently. The market is about to begin an epic correction. Deflationary busts often begin after major inflationary scares. 

The transports led the most recent rebound and are starting to lead the next decline, The Dollar, market breadth, and bond yields are continuing to flash major warning signs. The epic correction signal occurred with retail, hedge funds, and speculators all in, in the recent melt-up in January, suggesting a major top may be in. The moment of reckoning is here.  Technicals are tracking fundamentals and have recently turned bearish. 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 Depression (1930s) 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 3700 area is emerging on the S and P, and 15000 should arrive on the Nifty in the next few weeks. The FED is repeating the Japan experiment and the 3 lost decades in Japan (1989-2019) are set to repeat across the globe.

The trend has changed from bullish to bearish and the markets are about to get a reality check and get smashed by a strong dollar. Looking for significant underperformance in the Nifty going forward on rapidly deteriorating macros.

Yield curves are about to invert yet again reflecting a major upcoming recession. The critical levels to watch for the week are 3915 (up) and 3885 (down) on the S & P 500 and 16350 (up) and 16200 (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 yet again. Gold is increasingly looking like the asset class to own in the upcoming decade despite the recent selloff. You can check out last week’s report for a comparison. Love your thoughts and feedback.

 

 

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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.