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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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Monday, 10 April 2023

Market Signals for the US stock market S and P 500 Index and Indian Stock Market Nifty Index for the Week beginning April 10

 

Asset Class

Weekly Level / Change

Implication for S & P 500

Implication for Nifty*

S & P 500

4105, -0.10%

Neutral

Neutral

Nifty

17599, 1.38%

Neutral **

Bullish

China Shanghai Index

3328, 1.67%

Bullish

Bullish

Gold

2024, 2.79%

Bullish

Bullish

WTIC Crude

80.47, 6.34%

Bullish

Bullish

Copper

4.01, -2.01%

Bearish

Bearish

CRB Index

272, 1.59%

Bullish

Bullish

Baltic Dry Index

1560, 12.31%

Bullish

Bullish

Euro

1.0904, 0.60%

Bullish

Bullish

Dollar/Yen

132.20, -0.44%

Neutral

Neutral

Dow Transports

13966, -3.27%

Bearish

Bearish

Corporate Bonds (ETF)

110.33, 0.66%

Bullish

Bullish

High Yield Bonds (ETF)

91.89, -1.00%

Bearish

Bearish

US 10-year Bond Yield

3.41%, -1.74%

Bullish

Bullish

NYSE Summation Index

-17, 91%

Bullish

Neutral

US Vix

18.40, -1.60%

Bullish

Bullish

Skew

124

Neutral

Neutral

CNN Fear & Greed Index

Greed

Bearish

Bearish

20 DMA, S & P 500

3989, Above

Bullish

Neutral

50 DMA, S & P 500

4029, Above

Bullish

Neutral

200 DMA, S & P 500

3943, Above

Bullish

Neutral

20 DMA, Nifty

17211, Above

Neutral

Bullish

50 DMA, Nifty

17522, Above

Neutral

Bullish

200 DMA, Nifty

17499, Above

Neutral

Bullish

S & P 500 P/E

21.94

Bearish

Neutral

Nifty P/E

20.72

Neutral

Bearish

India Vix

11.80, -8.79%

Neutral

Bullish

Dollar/Rupee

81.87, -0.35%

Neutral

Neutral

 

 

Overall

 

 

S & P 500

 

 

Nifty

 

Bullish Indications

13

14

Bearish Indications

5

5

Outlook

Bullish

Bullish

Observation

The S&P was unchanged, 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 – CPI, PPI, Eurozone – German CPI, UK - 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 was unchanged, and the Nifty rallied last week. Indicators are bullish for the week. We are back above resistance near the 50 and 200 DMAs on the S&P 500, as we transition from an inflationary regime to a deflationary collapse. The Nifty is above resistance near its 50 WMA 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 little changed. Most emerging markets outperformed, as interest rates cooled off. Transports underperformed. The Baltic dry index rebounded. The dollar fell. Commodities rose. Valuations are quite expensive, market breadth improved, and the sentiment is now bullish. 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 bonds 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 encountering resistance near its recent highs. 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 4090 (down) on the S&P 500 and 17700 (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 (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.

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Cash - 40%
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Fixed deposit - 20%
Gold - 5%
Stocks - 10% ( Majority of this in dividend funds)
Other Asset Classes - 5%

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.