Market Signals for the US stock market S and P 500 Index and Indian Stock Market Nifty Index for the Week beginning June 06

 

Indicator	Weekly Level / Change	Implication for S & P 500	Implication for Nifty*
S & P 500	4109, - 1.20%	Bearish	Bearish
Nifty	16584, 1.42%	Neutral **	Bullish
China Shanghai Index	3196, 2.08%	Bullish	Bullish
Gold	1854, 0.34%	Neutral	Neutral
WTIC Crude	120.26, 4.02%	Bullish	Bullish
Copper	4.48, 3.56%	Bullish	Bullish
Baltic Dry Index	2633, -1.79%	Bearish	Bearish
Euro	1.0719, - 0.07%	Neutral	Neutral
Dollar/Yen	130.88, 2.97%	Bullish	Bullish
Dow Transports	14445, 0.00%	Neutral	Neutral
Corporate Bonds (ETF)	113.19, - 1.82%	Bearish	Bearish
High Yield Bonds (ETF)	97.37, - 1.92%	Bearish	Bearish
US 10-year Bond Yield	2.94%, 7.21%	Bearish	Bearish
NYSE Summation Index	-308, 46%	Bullish	Neutral
US Vix	24.79, - 3.62%	Bullish	Bullish
Skew	122	Neutral	Neutral
CNN Fear & Greed	Fear	Bullish	Bullish
20 DMA, S & P 500	4023, Above	Bullish	Neutral
50 DMA, S & P 500	4249, Below	Bearish	Neutral
200 DMA, S & P 500	4450, Below	Bearish	Neutral
20 DMA, Nifty	16229, Above	Neutral	Bullish
50 DMA, Nifty	16871, Below	Neutral	Bearish
200 DMA, Nifty	17262, Below	Neutral	Bearish
S & P 500 P/E	20.76	Bearish	Neutral
Nifty P/E	20.52	Neutral	Bearish
India Vix	19.90, - 7.34%	Neutral	Bullish
Dollar/Rupee	77.69, 0.13%	Neutral	Neutral
Overall	S & P 500	Nifty
Bullish Indications	8	9
Bearish Indications	8	8
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 – CPI, Eurozone – ECB rate decision, Japan – GDP, India – RBI 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 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 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 maybe little more is left 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 but 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 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 recent counter-trend move. 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 4125 (up) and 4095 (down) on the S & P 500 and 16650 (up) and 16500 (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.