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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, 25 December 2022

Market Signals for the US stock market S and P 500 Index and Indian Stock Market Nifty Index for the Week beginning December 26

 

Asset Class

Weekly Level / Change

Implication for

S & P 500

Implication for Nifty*

S & P 500

3845, -0.20%

Neutral

Neutral

Nifty

17807, -2.53%

Neutral **

Bearish

China Shanghai Index

3046, -3.85%

Bearish

Bearish

Gold

1806, 0.32%

Neutral

Neutral

WTIC Crude

79.35, 6.58%

Bullish

Bullish

Copper

3.81, 1.37%

Bullish

Bullish

Baltic Dry Index

1515, -2.88%

Bearish

Bearish

Euro

1.0613, 0.29%

Neutral

Neutral

Dollar/Yen

132.80, -2.85%

Bearish

Bearish

Dow Transports

13565, -1.26%

Bearish

Bearish

Corporate Bonds (ETF)

107.06, -1.83%

Bearish

Bearish

High Yield Bonds (ETF)

90.98, -0.93%

Bearish

Bearish

US 10-year Bond Yield

3.75%, 6.82%

Bearish

Bearish

NYSE Summation Index

-58, -141%

Bearish

Neutral

US Vix

20.87, -7.74%

Bullish

Bullish

Skew

115

Neutral

Neutral

CNN Fear & Greed Index

Fear

Bullish

Bullish

20 DMA, S & P 500

3943, Below

Bearish

Neutral

50 DMA, S & P 500

3886, Below

Bearish

Neutral

200 DMA, S & P 500

4017, Below

Bearish

Neutral

20 DMA, Nifty

18492, Below

Neutral

Bearish

50 DMA, Nifty

18168, Below

Neutral

Bearish

200 DMA, Nifty

17178, Above

Neutral

Bullish

S & P 500 P/E

20.00

Bearish

Neutral

Nifty P/E

21.40

Neutral

Bearish

India Vix

16.16, 14.85%

Neutral

Bearish

Dollar/Rupee

82.79, 0.10%

Neutral

Neutral

 

 

Overall

 

 

S & P 500

 

 

Nifty

 

Bullish Indications

4

5

Bearish Indications

12

12

Outlook

Bearish

Bearish

Observation

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

The markets have topped. Watch those stops.

On the Horizon

*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 500 was unchanged and the Nifty fell last week. Indicators are bearish for the week. The recent bounce has topped near the 200 DMA close to 4100 and decisive downside has resumed as we transition from an inflationary regime to a deflationary collapse. We had 2 months of upside in October and November, and that’s all she wrote in a bear market. Santa looks to be stuck in the chimney this time around as the dominant trend reasserts itself. The market is tracking closely the 1973/2008 moves down in the S and P, implying a panic low right ahead in the upcoming months (My views don’t matter, kindly pay attention to the levels)dollar rebound being the likely catalyst.

The past week saw relative calm in most global equity markets, emerging markets underperformed with a rise in interest rates. Transports fell. The Baltic dry index also fell. The dollar fell slightly. Commodities rebounded. Valuations are very expensive, market breadth is falling, and the sentiment is turning negative. No fear yet though, as complacency reigns characterized by low volatility. We may get an oversold bounce this week after which more downside is likely.

The ongoing currency crisis should resume and push risky assets to new lows across the board. Deflation is in the air despite the recent inflationary spike and the Chinese Yuan, Euro, commodities, and Yen are telegraphing just that. It feels like a 2008-style recession trade has begun, with a potential decline in risk assets across the board.

The S&P 500 is failing near the 200 DMA and is encountering resistance near 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 from recent lows 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 should continue breaking to the downside across the board. Downward earnings revisions are underway.

The Fed is aggressively tightening into a recession. 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 recent counter-trend moves.

The epic correction signal occurred with retail, hedge funds, and speculators all in, in January 2022, suggesting a major top is in. The moment of reckoning is here.   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 have inverted significantly reflecting a major upcoming recession. 

The critical levels to watch for the week are 3855 (up) and 3835 (down) on the S & P 500 and 17900 (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 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. You can check out last week’s report for a comparison. Love your thoughts and feedback.

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