Market Signals for the US stock market S and P 500 Index and Indian Stock Market Nifty Index for the Week beginning January 02

 

Asset Class	Weekly Level / Change	Implication for S & P 500	Implication for Nifty*
S & P 500	3840, -0.14%	Neutral	Neutral
Nifty	18105, 1.68%	Neutral **	Bullish
China Shanghai Index	3089, 1.42%	Bullish	Bullish
Gold	1830, 1.44%	Bullish	Bullish
WTIC Crude	80.44, 1.39%	Bullish	Bullish
Copper	3.82, 0.28%	Neutral	Neutral
Baltic Dry Index	1515, 0.00%	Neutral	Neutral
Euro	1.0704, 0.85%	Bullish	Bullish
Dollar/Yen	131.13, -1.26%	Bearish	Bearish
Dow Transports	13392, -1.27%	Bearish	Bearish
Corporate Bonds (ETF)	105.43, -1.52%	Bearish	Bearish
High Yield Bonds (ETF)	90.00, -1.08%	Bearish	Bearish
US 10-year Bond Yield	3.88%, 3.42%	Bearish	Bearish
NYSE Summation Index	-141, -145%	Bearish	Neutral
US Vix	21.67, 3.83%	Bearish	Bearish
Skew	114	Neutral	Neutral
CNN Fear & Greed Index	Fear	Bullish	Bullish
20 DMA, S & P 500	3904, Below	Bearish	Neutral
50 DMA, S & P 500	3898, Below	Bearish	Neutral
200 DMA, S & P 500	4008, Below	Bearish	Neutral
20 DMA, Nifty	18348, Below	Neutral	Bearish
50 DMA, Nifty	18257, Below	Neutral	Bearish
200 DMA, Nifty	17225, Above	Neutral	Bullish
S & P 500 P/E	19.97	Bearish	Neutral
Nifty P/E	21.79	Neutral	Bearish
India Vix	14.87, -8.00%	Neutral	Bullish
Dollar/Rupee	82.74, -0.04%	Neutral	Neutral
Overall	S & P 500	Nifty
Bullish Indications	5	8
Bearish Indications	11	9
Outlook	Bearish	Bearish
Observation	The S and P was unchanged and the Nifty rallied last week. Indicators are bearish for the week. The markets have topped. Watch those stops.
On the Horizon	US – Employment data, Eurozone – German Employment data, German CPI, CPI
*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 was unchanged and the Nifty rallied last week. Indicators are bearish for the week. The recent bounce has likely 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 2022, and that’s all she wrote in a bear market. The January effect may not materialize this time around. 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). A dollar rebound being the likely catalyst.

The past week saw most global equity markets relatively unchanged, emerging markets out-performed despite a rise in interest rates. Transports fell. The Baltic dry index was unchanged. The dollar fell. Commodities rallied. Valuations are very expensive, market breadth is falling, and the sentiment is turning negative. No fear yet though, as complacency reigns supreme. We could see any rebound to the 50 DMA near 3900 being sold into.

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. 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 declining. Monthly 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 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 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 rallied over 120% in our most recent rally of the COVID-19 lows. 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 challenging macros. Global yield curves have inverted significantly reflecting a major upcoming recession. 

The critical levels to watch for the week are 3855 (up) and 3825 (down) on the S & P 500 and 18200 (up) and 18000 (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.