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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 31 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 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 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 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.

 

 

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