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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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Sunday, 2 October 2022

Market Signals for the US stock market S and P 500 Index and Indian Stock Market Nifty Index for the Week beginning October 03

 

Indicator

Weekly Level / Change

Implication for

S & P 500

Implication for Nifty*

S & P 500

3586, - 2.91%

Bearish

Bearish

Nifty

17094, - 1.34%

Neutral **

Bearish

China Shanghai Index

3024, - 2.07%

Bearish

Bearish

Gold

1668, 1.04%

Bullish

Bullish

WTIC Crude

79.74, 0.24%

Neutral

Neutral

Copper

3.39, 0.92%

Bullish

Bullish

Baltic Dry Index

1760, - 3.08%

Bearish

Bearish

Euro

0.9801, 1.15%

Bullish

Bullish

Dollar/Yen

144.79, 1.03%

Bullish

Bullish

Dow Transports

12058, - 0.59%

Bearish

Bearish

Corporate Bonds (ETF)

102.45, - 2.25%

Bearish

Bearish

High Yield Bonds (ETF)

87.85, - 1.08%

Bearish

Bearish

US 10-year Bond Yield

3.83%, 2.42%

Bearish

Bearish

NYSE Summation Index

-943, - 83%

Bearish

Neutral

US Vix

31.62, 5.68%

Bearish

Bearish

Skew

124

Neutral

Neutral

CNN Fear & Greed

Extreme Fear

Bullish

Bullish

20 DMA, S & P 500

3845, Below

Bearish

Neutral

50 DMA, S & P 500

4012, Below

Bearish

Neutral

200 DMA, S & P 500

4213, Below

Bearish

Neutral

20 DMA, Nifty

17545, Below

Neutral

Bearish

50 DMA, Nifty

17425, Below

Neutral

Bearish

200 DMA, Nifty

16982, Above

Neutral

Bullish

S & P 500 P/E

18.12

Bearish

Neutral

Nifty P/E

20.64

Neutral

Bearish

India Vix

19.97, - 3.04%

Neutral

Bullish

Dollar/Rupee

81.52, 0.33%

Neutral

Neutral

 

 

Overall

 

 

S & P 500

 

 

Nifty

 

Bullish Indications

5

7

Bearish Indications

13

12

Outlook

Bearish

Bearish

Observation

The S and P and the Nifty fell last week. Indicators are bearish for the week.

The markets are making new lows. Watch those stops.

On the Horizon

US – Employment data

*Nifty

India’s Benchmark Stock Market Index

Raw Data

Courtesy Stock charts, investing.commultpl.com, NSE

**Neutral

Changes less than 0.5% are considered neutral

 




The S and P and the Nifty fell last week. Indicators are bearish for the week. We have been selling off from resistance near the 200 DMA on the S & P resulting in new lows.  The market is very oversold, so a bounce is due. The past week saw a fall in global markets, with a continued rise in interest rates. Transports are leading on the downside after making new recent lows.

The Baltic dry index resumed its fall. The dollar cooled off a bit. Commodities rebounded. The Nifty which has been out-performing is catching up with other assets to the downside. Valuations are expensive, market breadth is weakening, and the sentiment is strongly negative.

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, 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 recently 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, transports, 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 inverting yet again reflecting a major upcoming recession. 

The critical levels to watch for the week are 3600 (up) and 3575 (down) on the S & P 500 and 17200 (up) and 17000 (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.