Market Signals for the US stock market S and P 500 Index and Indian Stock Market Nifty Index for the Week beginning March 06

 

Asset Class	Weekly Level / Change	Implication for S & P 500		Implication for Nifty*
S & P 500	4046, 1.90%	Bullish	Bullish
Nifty	17594, 0.74%	Neutral **	Bullish
China Shanghai Index	3328, 1.87%	Bullish	Bullish
Gold	1863, 2.44%	Bullish	Bullish
WTIC Crude	79.85, 4.17%	Bullish	Bullish
Copper	4.07, 2.47%	Bullish	Bullish
CRB Index	275, 2.96%	Bullish	Bullish
Baltic Dry Index	1211, 37.15%	Bullish	Bullish
Euro	1.0636, 0.85%	Bullish	Bullish
Dollar/Yen	135.88, -0.43%	Neutral	Neutral
Dow Transports	15113, 3.31%	Bullish	Bullish
Corporate Bonds (ETF)	106.17, 0.30%	Neutral	Neutral
High Yield Bonds (ETF)	91.60, 0.68%	Bullish	Bullish
US 10-year Bond Yield	3.96%, 0.57%	Bearish	Bearish
NYSE Summation Index	408, -31%	Bearish	Neutral
US Vix	18.49, -14.67%	Bullish	Bullish
Skew	118	Neutral	Neutral
CNN Fear & Greed Index	Neutral	Neutral	Neutral
20 DMA, S & P 500	4060, Below	Bearish	Neutral
50 DMA, S & P 500	3988, Above	Bullish	Neutral
200 DMA, S & P 500	3940, Above	Bullish	Neutral
20 DMA, Nifty	17704, Below	Neutral	Bearish
50 DMA, Nifty	17857, Below	Neutral	Bearish
200 DMA, Nifty	17397, Above	Neutral	Bullish
S & P 500 P/E	21.63	Bearish	Neutral
Nifty P/E	20.73	Neutral	Bearish
India Vix	12.18, -14.13%	Neutral	Bullish
Dollar/Rupee	81.71, -1.43%	Neutral	Bullish
Overall	S & P 500	Nifty
Bullish Indications	12	15
Bearish Indications	4	4
Outlook	Bullish	Bullish
Observation	The S and P and the Nifty rallied last week. Indicators are bullish for the week. The markets are back at resistance. Watch those stops.
On the Horizon	Eurozone –German CPI, UK – GDP, Japan – GDP, BOJ rate decision, US – Employment data, FED talk
*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 500 and the Nifty rallied last week. Indicators are bullish for the week. We have recaptured the 50 WMA of the S&P 500 close to 4000 and the upside is likely capped as we transition from an inflationary regime to a deflationary collapse. The Nifty is failing at resistance near its 20WMA near 18010. The 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 being the likely catalyst.

The past week saw US equity markets rise. Most emerging markets rose, as interest rates moderated. Transports led. The Baltic dry index continued to rebound. The dollar fell. Commodities rallied. Valuations are quite expensive, market breadth declined, and the sentiment is still bullish and close to extremes. No fear yet though, as complacency reigns supreme.

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 risk assets across the board.

The S&P 500 is finally above the 200 DMA, while this is a short-term positive, 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&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 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 4060 (up) and 4030 (down) on the S&P 500 and 17650 (up) and 17500 (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.