Market Signals for the US stock market S and P 500 Index and Indian Stock Market Nifty Index for the Week beginning March 27

 

Asset Class	Weekly Level / Change	Implication for S & P 500		Implication for Nifty*
S & P 500	3971, 1.39%	Bullish	Bullish
Nifty	16945, -0.91%	Neutral **	Bearish
China Shanghai Index	3266, 0.46%	Neutral	Neutral
Gold	1984, 0.38%	Neutral	Neutral
WTIC Crude	66.93, 3.69%	Bullish	Bullish
Copper	4.07, 4.66%	Bullish	Bullish
CRB Index	259, 1.51%	Bullish	Bullish
Baltic Dry Index	1489, -3.00%	Bearish	Bearish
Euro	1.0760, 0.88%	Bullish	Bullish
Dollar/Yen	130.70, -2.36%	Bearish	Bearish
Dow Transports	13706, -0.49%	Neutral	Neutral
Corporate Bonds (ETF)	109.47, 1.37%	Bullish	Bullish
High Yield Bonds (ETF)	90.24, 0.37%	Neutral	Neutral
US 10-year Bond Yield	3.37%, -1.92%	Bullish	Bullish
NYSE Summation Index	-416, -63%	Bearish	Neutral
US Vix	21.74, -14.78%	Bullish	Bullish
Skew	127	Neutral	Neutral
CNN Fear & Greed Index	Fear	Bullish	Bullish
20 DMA, S & P 500	3955, Above	Bullish	Neutral
50 DMA, S & P 500	4014, Below	Bearish	Neutral
200 DMA, S & P 500	3933, Above	Bullish	Neutral
20 DMA, Nifty	17276, Below	Neutral	Bearish
50 DMA, Nifty	17625, Below	Neutral	Bearish
200 DMA, Nifty	17457, Below	Neutral	Bearish
S & P 500 P/E	21.23	Bearish	Neutral
Nifty P/E	19.97	Neutral	Bearish
India Vix	15.24, 3.20%	Neutral	Bearish
Dollar/Rupee	82.34, -0.21%	Neutral	Neutral
Overall	S & P 500	Nifty
Bullish Indications	11	9
Bearish Indications	5	8
Outlook	Bullish	Bullish
Observation	The S and P rallied and the Nifty fell last week. Indicators are bullish for the week. The markets are failing at resistance. Watch those stops.
On the Horizon	Eurozone – CPI, German CPI, German employment data, UK – GDP, 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&P 500 rallied and the Nifty fell last week. Indicators are bullish for the week. We are encountering resistance between the 50 and 200 DMA’s, as we transition from an inflationary regime to a deflationary collapse. The Nifty is failing at resistance near its 50WMA near 17320. The current market is tracking closely the 1973 move down in the S&P 500, implying a panic low right ahead in the upcoming months (My views do not matter, kindly pay attention to the levels). A dollar rebound is a likely catalyst.

The past week saw US equity markets rise. Most emerging markets underperformed, as a flight to quality sent interest rates sharply lower. Transports diverged and fell. The Baltic dry index fell. The dollar fell. Commodities rose, with gold catching a flight to quality bid. Valuations are quite expensive, market breadth declined, and the sentiment is now bearish. Fear has started to rise, as possible contagion risk from bank failures rises. The sudden steepening of the yield curve, with rates falling, is a precursor to the next recession, and most risky assets (unlike last week) will underperform under such conditions.

The recent 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 risky assets across the board.

The S&P 500 is encountering resistance near its 200 DMA, and its 200 DMA is declining. Monthly MACDs on most global markets are still negative. This spells trouble and opens 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 countertrend 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&P 500, 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 contagion risk 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 3955 (down) on the S&P 500 and 17050 (up) and 16850 (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 (though technically overbought in the short term) 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.