Market Signals for the US stock market S and P 500 Index and Indian Stock Market Nifty Index for the Week beginning April 03

 

Asset Class	Weekly Level / Change	Implication for S & P 500		Implication for Nifty*
S & P 500	4109, 3.48%	Bullish	Bullish
Nifty	17360, 2.45%	Neutral **	Bullish
China Shanghai Index	3273, 0.22%	Neutral	Neutral
Gold	1987, 0.12%	Neutral	Neutral
WTIC Crude	75.70, 9.30%	Bullish	Bullish
Copper	4.08, 0.21%	Neutral	Neutral
CRB Index	268, 3.57%	Bullish	Bullish
Baltic Dry Index	1389, -6.72%	Bearish	Bearish
Euro	1.0842, 0.77%	Bullish	Bullish
Dollar/Yen	132.76, 1.58%	Bullish	Bullish
Dow Transports	14439, 5.34%	Bullish	Bullish
Corporate Bonds (ETF)	109.61, 0.13%	Neutral	Neutral
High Yield Bonds (ETF)	92.82, 2.86%	Bullish	Bullish
US 10-year Bond Yield	3.47%, 2.98%	Bearish	Bearish
NYSE Summation Index	-195, 53%	Bullish	Neutral
US Vix	18.70, -13.98%	Bullish	Bullish
Skew	126	Neutral	Neutral
CNN Fear & Greed Index	Neutral	Neutral	Neutral
20 DMA, S & P 500	3965, Above	Bullish	Neutral
50 DMA, S & P 500	4021, Above	Bullish	Neutral
200 DMA, S & P 500	3936, Above	Bullish	Neutral
20 DMA, Nifty	17214, Above	Neutral	Bullish
50 DMA, Nifty	17557, Below	Neutral	Bearish
200 DMA, Nifty	17473, Below	Neutral	Bearish
S & P 500 P/E	21.97	Bearish	Neutral
Nifty P/E	20.44	Neutral	Bearish
India Vix	12.94, -15.12%	Neutral	Bullish
Dollar/Rupee	82.18, -0.19%	Neutral	Neutral
Overall	S & P 500	Nifty
Bullish Indications	12	11
Bearish Indications	3	5
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	US – Employment data, India – RBI 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&P 500 and the Nifty rallied last week. Indicators are bullish for the week. We are back above resistance near the 50 and 200 DMA’s on the S&P 500, as we transition from an inflationary regime to a deflationary collapse. The Nifty is at resistance near its 50WMA near 17320. The current market is tracking closely the 1973/2008 moves 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 interest rates rebounded upwards. Transports led the move up. The Baltic dry index fell. The dollar fell. Commodities rose. Valuations are quite expensive, market breadth rebounded, and the sentiment is now neutral. Fear has cooled off again, despite possible contagion risk from bank failures. The sudden steepening of the yield curve, with rates falling, is a precursor to the next recession, and most risky assets 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 4120 (up) and 4095 (down) on the S&P 500 and 17450 (up) and 17300 (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.