Market Signals for the US stock market S and P 500 Index and Indian Stock Market Nifty Index for the Week beginning July 04

 

Indicator	Weekly Level / Change	Implication for S & P 500	Implication for Nifty*
S & P 500	3825, - 2.21%	Bearish	Bearish
Nifty	15752, 0.34%	Neutral **	Neutral
China Shanghai Index	3388, 1.13%	Bullish	Bullish
Gold	1813, - 0.95%	Bearish	Bearish
WTIC Crude	108.46, 0.78%	Bullish	Bullish
Copper	3.61, - 3.39%	Bearish	Bearish
Baltic Dry Index	2214, - 5.02%	Bearish	Bearish
Euro	1.0429, - 1.20%	Bearish	Bearish
Dollar/Yen	135.21, 0.02%	Neutral	Neutral
Dow Transports	13289, - 1.91%	Bearish	Bearish
Corporate Bonds (ETF)	111.12, 0.94%	Bullish	Bullish
High Yield Bonds (ETF)	91.04, - 1.74%	Bearish	Bearish
US 10-year Bond Yield	2.89%, - 7.81%	Bullish	Bullish
NYSE Summation Index	-467, 13%	Bullish	Neutral
US Vix	26.70, - 1.95%	Bullish	Bullish
Skew	119	Neutral	Neutral
CNN Fear & Greed	Extreme Fear	Bullish	Bullish
20 DMA, S & P 500	3871, Below	Bearish	Neutral
50 DMA, S & P 500	4006, Below	Bearish	Neutral
200 DMA, S & P 500	4390, Below	Bearish	Neutral
20 DMA, Nifty	15827, Below	Neutral	Bearish
50 DMA, Nifty	16214, Below	Neutral	Bearish
200 DMA, Nifty	17157, Below	Neutral	Bearish
S & P 500 P/E	19.33	Bearish	Neutral
Nifty P/E	19.46	Neutral	Bearish
India Vix	21.25, 3.41%	Neutral	Bearish
Dollar/Rupee	78.95, 0.92%	Neutral	Bearish
Overall	S & P 500	Nifty
Bullish Indications	7	6
Bearish Indications	11	12
Outlook	Bearish	Bearish
Observation	The S and P fell and the Nifty was unchanged last week. Indicators are bearish for the week. The markets are correcting. Watch those stops.
On the Horizon	Eurozone – ECB decision minutes, US – FOMC decision minutes, employment data
*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 was unchanged last week. Indicators are bearish for the week.  Deflation is in the air despite the recent inflationary spike and the Chinese Yuan, government bonds, and commodities are 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 is well below the 200 DMA, after spending a very long time above it, and its 200 DMA is declining. Monthly MACDs on most global markets have gone negative after a long time. This spells trouble and opens up significant downside risk ahead. The market is near new lows for the year.

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. We may get a final flush down soon. Risky assets are breaking to the downside across the board. Downward earnings revisions are likely soon.

The Fed is aggressively tightening into a recession. Tail risk while moderating is still high.  Deflationary busts often begin after major inflationary scares. The market has corrected significantly and more is left on the downside.

The transports are leading 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 is 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 3500 area is emerging on the S and P, and 14000 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 getting a reality check and getting smashed by rising rates and 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 3840 (up) and 3815 (down) on the S & P 500 and 15850 (up) and 15650 (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.