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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 22 January 2023

Market Signals for the US stock market S and P 500 Index and Indian Stock Market Nifty Index for the Week beginning January 23

 

Asset Class

Weekly Level / Change

Implication for S & P 500

Implication for Nifty*

S & P 500

3973, -0.66%

Bearish

Bearish

Nifty

18028, 0.40%

Neutral **

Neutral

China Shanghai Index

3265, 2.18%

Bullish

Bullish

Gold

1928, 0.41%

Neutral

Neutral

WTIC Crude

81.96, 2.73%

Bullish

Bullish

Copper

4.28, 1.74%

Bullish

Bullish

CRB Index

279, 0.92%

Bullish

Bullish

Baltic Dry Index

763, -19.34%

Bearish

Bearish

Euro

1.0856, 0.26%

Neutral

Neutral

Dollar/Yen

129.59, 1.34%

Bullish

Bullish

Dow Transports

14356, -0.06%

Neutral

Neutral

Corporate Bonds (ETF)

110.55, 0.07%

Neutral

Neutral

High Yield Bonds (ETF)

93.39, -0.61%

Bearish

Bearish

US 10-year Bond Yield

3.48%, -0.46%

Neutral

Neutral

NYSE Summation Index

616, 60%

Bullish

Neutral

US Vix

19.85, 8.17%

Bearish

Bearish

Skew

120

Neutral

Neutral

CNN Fear & Greed Index

Greed

Bearish

Bearish

20 DMA, S & P 500

3889, Above

Bullish

Neutral

50 DMA, S & P 500

3929, Above

Bullish

Neutral

200 DMA, S & P 500

3969, Above

Bullish

Neutral

20 DMA, Nifty

18043, Below

Neutral

Bearish

50 DMA, Nifty

18284, Below

Neutral

Bearish

200 DMA, Nifty

17288, Above

Neutral

Bullish

S & P 500 P/E

20.66

Bearish

Neutral

Nifty P/E

21.46

Neutral

Bearish

India Vix

13.79, -4.65%

Neutral

Bullish

Dollar/Rupee

80.99, -0.36%

Neutral

Neutral

 

 

Overall

 

 

S & P 500

 

 

Nifty

 

Bullish Indications

9

7

Bearish Indications

6

8

Outlook

Bullish

Bearish

Observation

The S and P fell and the Nifty was up last week. Indicators are mixed for the week.

The markets are back at resistance. Watch those stops.

On the Horizon

US – 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 fell and the Nifty rallied last week. Indicators are mixed for the week. The recent bounce is encountering resistance near the 200 DMA close to 4000 and downside is likely 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 move 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 US equity markets fall, and high beta outperformed. Most emerging markets were up following a fall in interest rates. Transports were unchanged. The Baltic dry index continued to crater. The dollar was unchanged. 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 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 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 challenging macros. 

The critical levels to watch for the week are 3985 (up) and 3960 (down) on the S & P 500 and 18100 (up) and 17950 (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.

 

 

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Cash - 40%
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My belief is that stocks are relatively overvalued compared to bonds and attractive buying opportunities can come along after 1-2 years. In a deflationary scenario no asset class does well other than U.S bonds, the U.S dollar and the Japanese yen, so better to be safe than sorry with high quality government bonds and fixed deposits. Cash is the king always. Of course this varies with the person's age.