Market Signals for the US stock market S and P 500 Index and Indian Stock Market Nifty Index for the Week beginning October 31

 

Indicator	Weekly Level / Change	Implication for S & P 500	Implication for Nifty*
S & P 500	3901, 4.74%	Bullish	Bullish
Nifty	17787, 2.27%	Neutral **	Bullish
China Shanghai Index	2916, - 1.08%	Bearish	Bearish
Gold	1648, 0.82%	Bearish	Bearish
WTIC Crude	88.38, - 0.77%	Bullish	Bullish
Copper	3.43, 1.62%	Bearish	Bearish
Baltic Dry Index	1534, - 15.67%	Bearish	Bearish
Euro	0.9965, 1.47%	Bullish	Bullish
Dollar/Yen	147.46, - 0.73%	Neutral	Neutral
Dow Transports	13575, 1.51%	Bullish	Bullish
Corporate Bonds (ETF)	101.90, - 0.90%	Bullish	Bullish
High Yield Bonds (ETF)	91.44, 1.17%	Bullish	Bullish
US 10-year Bond Yield	4.01%, 5.42%	Bullish	Bullish
NYSE Summation Index	-732, 31%	Bullish	Neutral
US Vix	25.75, - 7.28%	Bullish	Bullish
Skew	112	Neutral	Neutral
CNN Fear & Greed Index	Greed	Bearish	Bearish
20 DMA, S & P 500	3719, Above	Bullish	Neutral
50 DMA, S & P 500	3842, Above	Bullish	Neutral
200 DMA, S & P 500	4113, Below	Bearish	Neutral
20 DMA, Nifty	17288, Above	Neutral	Bullish
50 DMA, Nifty	17506, Above	Neutral	Bullish
200 DMA, Nifty	16994, Above	Neutral	Bullish
S & P 500 P/E	20.29	Bearish	Neutral
Nifty P/E	21.15	Neutral	Bearish
India Vix	15.92, - 5.35%	Neutral	Bullish
Dollar/Rupee	82.27, 0.24%	Neutral	Neutral
Overall	S & P 500	Nifty
Bullish Indications	11	13
Bearish Indications	7	6
Outlook	Bullish	Bullish
Observation	The S and P and the Nifty rallied last week. Indicators are bullish for the week. The markets are about to hit resistance. Watch those stops.
On the Horizon	US – FOMC rate decision, Employment data, Eurozone – CPI, German Employment data, UK – BOE rate decision, 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 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.  Finally, we got a sustainable bounce that crossed the 50 DMA of the S and P and may top at the 200 DMA near 4100. The market is tracking closely the 2008 move down in the S and P, implying a panic low right ahead in the upcoming months.

The past week saw a further rebound in global markets, following a cool-off in interest rates. Transports had a big move up. The Baltic dry index continues to crater. The dollar fell. Commodities were mixed. Valuations are expensive, market breadth is improving, and so is the sentiment.

The ongoing 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 2008-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 recently failed at this important mark, after spending a very long time above it, and its 200 DMA is declining. Monthly MACDs on most global markets are still negative. This spells trouble and opens up significant downside risk ahead. We have got bounces without capitulation. This suggests the lows may not be in and the regime has changed 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 has moderated.  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.

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. 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 3300 area is emerging on the S and P, and 15000 should arrive on the Nifty in the next few months. The Nifty which has been out-performing will likely catch up with other assets on the downside soon.

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 inverting yet again reflecting a major upcoming recession. 

The critical levels to watch for the week are 3915 (up) and 3890 (down) on the S & P 500 and 17850 (up) and 17700 (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.