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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 26 June 2023

Market Signals for the US stock market S and P 500 Index and Indian Stock Market Nifty Index for the Week beginning June 26

 

Asset Class

Weekly Level / Change

Implication for S & P 500

Implication for Nifty*

S & P 500

4348, -1.39%

Bearish

Bearish

Nifty

18666, -0.85%

Neutral **

Bearish

China Shanghai Index

3198, -2.30%

Bearish

Bearish

Gold

1930, -1.99%

Bearish

Bearish

WTIC Crude

69.50, -2.76%

Bearish

Bearish

Copper

3.82, -1.50%

Bearish

Bearish

CRB Index

263, -2.92%

Bearish

Bearish

Baltic Dry Index

1240, 15.24%

Bullish

Bullish

Euro

1.0895, -0.35%

Neutral

Neutral

Dollar/Yen

143.73 1.35%

Bullish

Bullish

Dow Transports

14687, -0.71%

Bearish

Bearish

Corporate Bonds (ETF)

107.70, 0.01%

Neutral

Neutral

High Yield Bonds (ETF)

90.90, -1.10%

Bearish

Bearish

US 10-year Bond Yield

3.74%, -0.61%

Bullish

Bullish

NYSE Summation Index

179, -18%

Bearish

Bearish

US Vix

13.44, -0.74%

Bullish

Bullish

Skew

138

Neutral

Neutral

CNN Fear & Greed Index

Greed

Bearish

Bearish

20 DMA, S & P 500

4303, Above

Bullish

Neutral

50 DMA, S & P 500

4202, Above

Bullish

Neutral

200 DMA, S & P 500

3993, Above

Bullish

Neutral

20 DMA, Nifty

18668, Below

Neutral

Bearish

50 DMA, Nifty

18314, Above

Neutral

Bullish

200 DMA, Nifty

17929, Above

Neutral

Bullish

S & P 500 P/E

25.17

Bearish

Neutral

Nifty P/E

21.73

Neutral

Bearish

India Vix

11.24, 3.64%

Neutral

Bearish

Dollar/Rupee

81.96, 0.06%

Neutral

Neutral

 

 

Overall

 

 

S & P 500

 

 

Nifty

 

Bullish Indications

7

6

Bearish Indications

11

14

 

Outlook

Bearish

Bearish

Observation

 

The S&P 500 and the Nifty fell last week. Indicators are bearish for the week.

The markets have gone parabolic. Watch those stops.

On the Horizon

UK – GDP, Eurozone - CPI, German CPI, 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 and the Nifty fell last week. Indicators are bearish for the week. We are correcting from recent highs on the S&P 500, as we transition from an inflationary regime to a deflationary collapse. The Nifty is also correcting from its recent highs.

The past week saw US equity markets fall. Most emerging markets fell, even as interest rates fell slightly. Transports fell. The Baltic dry index rose significantly. The dollar rose. Commodities fell. Valuations continue to be quite expensive, market breadth fell, and the sentiment is now extremely bullish. Fear has collapsed, as a possible reality check from a FED Pivot looms.

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 for a decline in risk assets across the board. The current market is tracking closely the 2000 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 from major support is a likely catalyst.

The S&P 500 is encountering resistance near its recent highs. 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, as downward earnings revisions are underway.

The Fed has aggressively tightened into a recession. Deflationary busts often begin after major inflationary scares. The market has rebounded after correcting significantly, and more is left on the downside. The Dollar, commodities, and bond yields are continuing to flash major warning signs.

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 3600 area is emerging on the S&P 500, and 16000 should arrive on the Nifty in the next few months.

The trend has changed from bullish to bearish and markets risk getting a reality check and smashed by contagion risk from an economic slowdown and a strong dollar. Global yield curves have inverted significantly reflecting a major upcoming recession. The recent steepening of the yield curve, within an inverted context, with rates falling, is a precursor to the next recession, and most risky assets will underperform going forward under such conditions. Looking for significant underperformance in the Nifty going forward on challenging macros.

The critical levels to watch for the week are 4360 (up) and 4335 (down) on the S&P 500 and 18750 (up) and 18600 (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 over the next decade (Gold exploded almost 8 times higher over the decade following the dotcom bust in 2000, just imagine what would happen when this AI bubble bursts? following the recent crypto bubble burst) 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%
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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.