Market Signals for the US stock market S and P 500 Index and Indian Stock Market Nifty Index for the Week beginning July 31

 

Asset Class	Weekly Level / Change	Implication for S & P 500		Implication for Nifty*
S & P 500	4582, 1.01%	Bullish	Bullish
Nifty	19646, -0.50%	Neutral **	Bearish
China Shanghai Index	3276, 3.42%	Bullish	Bullish
Gold	2000, 1.69%	Bullish	Bullish
WTIC Crude	80.67, 4.67%	Bullish	Bullish
Copper	3.93, 3.02%	Bullish	Bullish
CRB Index	281, 1.45%	Bullish	Bullish
Baltic Dry Index	1110, 13.50%	Bullish	Bullish
Euro	1.1016, -0.96%	Bearish	Bearish
Dollar/Yen	141.17, -0.44%	Neutral	Neutral
Dow Transports	16695, 2.85%	Bullish	Bullish
Corporate Bonds (ETF)	107.55, -0.39%	Neutral	Neutral
High Yield Bonds (ETF)	92.46, 0.00%	Neutral	Neutral
US 10-year Bond Yield	3.96%, 3.13%	Bearish	Bearish
NYSE Summation Index	832, 11%	Bullish	Neutral
US Vix	13.33, -1.99%	Bullish	Bullish
Skew	144	Bearish	Bearish
CNN Fear & Greed Index	Extreme Greed	Bearish	Bearish
20 DMA, S & P 500	4501, Above	Bullish	Neutral
50 DMA, S & P 500	4371, Above	Bullish	Neutral
200 DMA, S & P 500	4074, Above	Bullish	Neutral
20 DMA, Nifty	19578, Above	Neutral	Bullish
50 DMA, Nifty	19011, Above	Neutral	Bullish
200 DMA, Nifty	18165, Above	Neutral	Bullish
S & P 500 P/E	26.53	Bearish	Neutral
Nifty P/E	22.91	Neutral	Bearish
India Vix	10.14, -11.75%	Neutral	Bullish
Dollar/Rupee	82.34, 0.44%	Neutral	Neutral
Overall	S & P 500	Nifty
Bullish Indications	13	14
Bearish Indications	5	6
Outlook	Bullish	Bullish
Observation	The S&P 500 rallied and the Nifty fell week. Indicators are bullish for the week. The markets have gone parabolic. Watch those stops.
On the Horizon	US – Employment data, Eurozone – CPI, UK - BOE 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 rallied and the Nifty fell last week. Indicators are bullish for the week. We are near recent highs on the S&P 500, as we transition from an inflationary regime to a deflationary collapse. The Nifty is close to its life highs.

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

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 3800 area is emerging on the S&P 500, and 17000 should arrive on the Nifty in the next few months.

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 4595 (up) and 4570 (down) on the S&P 500 and 19750 (up) and 19550 (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.