Market Signals for the US stock market S and P 500 Index and Indian Stock Market Nifty Index for the Week beginning May 30

 

Indicator	Weekly Level / Change	Implication for S & P 500	Implication for Nifty*
S & P 500	4158, 6.58%	Bullish	Bullish
Nifty	16353, 0.53%	Neutral **	Bullish
China Shanghai Index	3130, - 0.52%	Bearish	Bearish
Gold	1852, 0.52%	Bullish	Bullish
WTIC Crude	115.07, 1.63%	Bullish	Bullish
Copper	4.32, 1.11%	Bullish	Bullish
Baltic Dry Index	2681, -19.83%	Bearish	Bearish
Euro	1.0735, 1.66%	Bullish	Bullish
Dollar/Yen	127.13, - 0.56%	Bearish	Bearish
Dow Transports	14445, 7.07%	Bullish	Bullish
Corporate Bonds (ETF)	115.29, 2.55%	Bullish	Bullish
High Yield Bonds (ETF)	99.28, 4.84%	Bullish	Bullish
US 10-year Bond Yield	2.74%, - 2.32%	Bullish	Bullish
NYSE Summation Index	-573, 32%	Bullish	Neutral
US Vix	25.72, - 12.61%	Bullish	Bullish
Skew	121	Neutral	Neutral
CNN Fear & Greed	Extreme Fear	Bullish	Bullish
20 DMA, S & P 500	4036, Above	Bullish	Neutral
50 DMA, S & P 500	4277, Below	Bearish	Neutral
200 DMA, S & P 500	4457, Below	Bearish	Neutral
20 DMA, Nifty	16277, Above	Neutral	Bullish
50 DMA, Nifty	16918, Below	Neutral	Bearish
200 DMA, Nifty	17253, Below	Neutral	Bearish
S & P 500 P/E	20.27	Bearish	Neutral
Nifty P/E	21.02	Neutral	Bearish
India Vix	21.48, - 7.01%	Neutral	Bullish
Dollar/Rupee	77.69, - 0.20%	Neutral	Neutral
Overall	S & P 500	Nifty
Bullish Indications	13	14
Bearish Indications	6	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	US – Employment data, Eurozone – German employment data, CPI
*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 rallied last week. Indicators are bullish 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 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. We got the 250-point rally in the S & P 500 and some consolidation is likely in this bear market bounce.

We have got bounces without capitulation. This suggests the lows may not be in and the regime is changing from buying the dip to selling 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 top. Tail 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 despite the counter-trend move up. 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 (the 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 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 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 4180 (up) and 4145 (down) on the S & P 500 and 16450 (up) and 16250 (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 and will likely prove to be a sell on every rise. 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.