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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, 12 September 2022

Market Signals for the US stock market S and P 500 Index and Indian Stock Market Nifty Index for the Week beginning September 12

 

Indicator

Weekly Level / Change

Implication for

S & P 500

Implication for Nifty*

S & P 500

4067, 3.65%

Bullish

Bullish

Nifty

17833, 1.68%

Neutral **

Bullish

China Shanghai Index

3262, 2.37%

Bullish

Bullish

Gold

1728, 0.52%

Bullish

Bullish

WTIC Crude

86.10, - 2.44%

Bearish

Bearish

Copper

3.56, 4.91%

Bullish

Bullish

Baltic Dry Index

1213, 11.69%

Bullish

Bullish

Euro

1.0045, 0.94%

Bullish

Bullish

Dollar/Yen

142.57, 1.69%

Bullish

Bullish

Dow Transports

14061, 2.35%

Bullish

Bullish

Corporate Bonds (ETF)

108.38, - 0.01%

Neutral

Neutral

High Yield Bonds (ETF)

93.35, 1.92%

Bullish

Bullish

US 10-year Bond Yield

3.32%, 3.76%

Bearish

Bearish

NYSE Summation Index

-34, - 119%

Bearish

Neutral

US Vix

22.79, - 10.52%

Bullish

Bullish

Skew

120

Neutral

Neutral

CNN Fear & Greed

Neutral

Neutral

Neutral

20 DMA, S & P 500

4108, Below

Bearish

Neutral

50 DMA, S & P 500

4030, Above

Bullish

Neutral

200 DMA, S & P 500

4276, Below

Bearish

Neutral

20 DMA, Nifty

17666, Above

Neutral

Bullish

50 DMA, Nifty

16982, Above

Neutral

Bullish

200 DMA, Nifty

16967, Above

Neutral

Bullish

S & P 500 P/E

20.55

Bearish

Neutral

Nifty P/E

21.29

Neutral

Bearish

India Vix

17.72, - 9.37%

Neutral

Bullish

Dollar/Rupee

79.67, - 0.06%

Neutral

Neutral

 

 

Overall

 

 

S & P 500

 

 

Nifty

 

Bullish Indications

11

15

Bearish Indications

5

3

Outlook

Bullish

Bullish

Observation

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

The markets are failing at resistance. Watch those stops.

On the Horizon

Eurozone – CPI, UK – GDP, CPI, Employment data,  BOE rate decision, US – CPI, PPI

*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. We have been selling off from resistance near the 200 DMA on the S & P and the sell-off is likely to continue with bounces being sold into. The past week saw a rebound in global markets, despite a rise in interest rates. The Baltic dry index has absolutely cratered in the last few weeks. The dollar sell-off at the end of the week helped gains in risk assets, which largely appears to be a counter-trend move. Crude continues to underperform. The Nifty which has been out-performing will likely catch up with other assets on the downside soon. Valuations are expensive, market breadth is weakening, and sentiment remains neutral at best.

The upcoming currency crisis should push risky assets to new lows across the board. Deflation is in the air despite the recent inflationary spike and the Chinese Yuan, Euro, 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 below the 200 DMA and just failed at this important mark, after spending a very long time above it, and its 200 DMA is decliningMonthly MACDs on most global markets are still negative. This spells trouble and opens up significant downside risk ahead.

We have got bounces without capitulationThis 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 Dollar, commodities, and bond yields are continuing to flash major warning signs despite the recent 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 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 15000 should arrive on the Nifty in the next few months. Central banks are 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 4080 (up) and 4055 (down) on the S & P 500 and 17900 (up) and 17750 (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 will get 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.

 

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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.