Market Signals for the US stock market S and P 500 Index and Indian Stock Market Nifty Index for the Week beginning January 09

 

Asset Class	Weekly Level / Change	Implication for S & P 500	Implication for Nifty*
S & P 500	3895, 1.45%	Bullish	Bullish
Nifty	17860, -1.36%	Neutral **	Bearish
China Shanghai Index	3158, 2.21%	Bullish	Bullish
Gold	1871, 2.43%	Bullish	Bullish
WTIC Crude	73.73, -8.38%	Bearish	Bearish
Copper	3.92, 2.90%	Bullish	Bullish
Baltic Dry Index	1130, -25.41%	Bearish	Bearish
Euro	1.0644, -0.54%	Bearish	Bearish
Dollar/Yen	132.10, 0.76%	Bullish	Bullish
Dow Transports	13876, 3.62%	Bullish	Bullish
Corporate Bonds (ETF)	108.60, 3.01%	Bullish	Bullish
High Yield Bonds (ETF)	92.44, 2.71%	Bullish	Bullish
US 10-year Bond Yield	3.56%, -8.21%	Bullish	Bullish
NYSE Summation Index	-29, 80%	Bullish	Neutral
US Vix	21.13, -2.49%	Bullish	Bullish
Skew	114	Neutral	Neutral
CNN Fear & Greed Index	Neutral	Neutral	Neutral
20 DMA, S & P 500	3876, Above	Bullish	Neutral
50 DMA, S & P 500	3904, Below	Bearish	Neutral
200 DMA, S & P 500	3996, Below	Bearish	Neutral
20 DMA, Nifty	18214, Below	Neutral	Bearish
50 DMA, Nifty	18303, Below	Neutral	Bearish
200 DMA, Nifty	17255, Above	Neutral	Bullish
S & P 500 P/E	20.26	Bearish	Neutral
Nifty P/E	21.49	Neutral	Bearish
India Vix	15.03, 1.06%	Neutral	Bearish
Dollar/Rupee	82.28, -0.53%	Neutral	Bullish
Overall	S & P 500	Nifty
Bullish Indications	12	12
Bearish Indications	6	8
Outlook	Bullish	Bullish
Observation	The S and P was up and the Nifty fell last week. Indicators are bullish for the week. The markets are back at resistance. Watch those stops.
On the Horizon	US – CPI, UK – GDP
*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 rallied and the Nifty fell last week. Indicators are bullish 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, 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 rally. Most emerging markets except India were up following a fall in interest rates. Transports led the move up. The Baltic dry index cratered. The dollar rebounded. Commodities fell except for precious metals and copper. Valuations are very expensive, market breadth rebounded, and the sentiment is neutral. No fear yet though, as complacency reigns supreme. We could see any rebound to the 50/200 DMA near 3900/4000 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. Global yield curves have inverted significantly reflecting a major upcoming recession. Looking for significant underperformance in the Nifty going forward on rapidly challenging macros. 

The critical levels to watch for the week are 3910 (up) and 3880 (down) on the S & P 500 and 17950 (up) and 17800 (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.