Market Signals for the US stock market S and P 500 Index and Indian Stock Market Nifty Index for the Week beginning January 16

 

Asset Class	Weekly Level / Change	Implication for S & P 500		Implication for Nifty*
S & P 500	3999, 2.67%	Bullish	Bullish
Nifty	17957, 0.54%	Neutral **	Bullish
China Shanghai Index	3195, 1.19%	Bullish	Bullish
Gold	1923, 2.87%	Bullish	Bullish
WTIC Crude	80.11, 8.10%	Bullish	Bullish
Copper	4.22, 7.84%	Bullish	Bullish
CRB Index	276, 4.19%	Bullish	Bullish
Baltic Dry Index	946, -16.28%	Bearish	Bearish
Euro	1.0833, 1.78%	Bullish	Bullish
Dollar/Yen	127.88, -3.17%	Bearish	Bearish
Dow Transports	14364, 3.52%	Bullish	Bullish
Corporate Bonds (ETF)	110.47, 1.72%	Bullish	Bullish
High Yield Bonds (ETF)	93.96, 1.64%	Bullish	Bullish
US 10-year Bond Yield	3.50%, -1.74%	Bullish	Bullish
NYSE Summation Index	385, 1429%	Bullish	Neutral
US Vix	18.35, -13.16%	Bullish	Bullish
Skew	122	Neutral	Neutral
CNN Fear & Greed Index	Greed	Bearish	Bearish
20 DMA, S & P 500	3869, Above	Bullish	Neutral
50 DMA, S & P 500	3914, Above	Bullish	Neutral
200 DMA, S & P 500	3981, Above	Bullish	Neutral
20 DMA, Nifty	18078, Below	Neutral	Bearish
50 DMA, Nifty	18296, Below	Neutral	Bearish
200 DMA, Nifty	17273, Above	Neutral	Bullish
S & P 500 P/E	20.80	Bearish	Neutral
Nifty P/E	21.54	Neutral	Bearish
India Vix	14.46, -3.76%	Neutral	Bullish
Dollar/Rupee	81.29, -1.20%	Neutral	Bullish
Overall	S & P 500	Nifty
Bullish Indications	16	16
Bearish Indications	4	6
Outlook	Bullish	Bullish
Observation	The S and P and the Nifty were up last week. Indicators are bullish for the week. The markets are back at resistance. Watch those stops.
On the Horizon	US – PPI, Eurozone – German CPI, CPI, UK – Employment data, CPI, China – GDP, Japan – BOJ 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. The recent bounce is encountering resistance near the 200 DMA close to 4000 and a decisive downside has resumed as we transition from an inflationary regime to a deflationary collapse. The January effect may terminate abruptly 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 is a likely catalyst.

The past week saw most global equity markets rally. Most emerging markets were up following a fall in interest rates. Transports led the move up. The Baltic dry index continues to crater. The dollar fell. Commodities rallied. Valuations are very expensive, market breadth rebounded, and the sentiment is improving. No fear yet though, as complacency reigns supreme. We could see any rebound to the 200 DMA near 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 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 4010 (up) and 3985 (down) on the S & P 500 and 18050 (up) and 17900 (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. You can check out last week’s report for a comparison. Love your thoughts and feedback.