Market Signals for the US stock market S and P 500 Index and Indian Stock Market Nifty Index for the Week beginning August 28

 

Asset Class	Weekly Level / Change	Implication for S & P 500		Implication for Nifty*
S & P 500	4406, 0.82%	Bullish	Bullish
Nifty	19266, -0.23%	Neutral **	Neutral
China Shanghai Index	3064, -2.17%	Bearish	Bearish
Gold	1943, 1.40%	Bullish	Bullish
WTIC Crude	80.05, -1.48%	Bearish	Bearish
Copper	3.78, 2.10%	Bullish	Bullish
CRB Index	278, 0.99%	Bullish	Bullish
Baltic Dry Index	1080, -12.69%	Bearish	Bearish
Euro	1.0796, -0.64%	Bearish	Bearish
Dollar/Yen	146.46, 0.75%	Bullish	Bullish
Dow Transports	15615, -0.55%	Bearish	Bearish
Corporate Bonds (ETF)	104.96, 0.83%	Bullish	Bullish
High Yield Bonds (ETF)	91.51, 0.74%	Bullish	Bullish
US 10-year Bond Yield	4.23%, -0.46%	Neutral	Neutral
NYSE Summation Index	-71, -132%	Bearish	Neutral
US Vix	15.68, -9.36%	Bullish	Bullish
Skew	132	Neutral	Neutral
CNN Fear & Greed Index	Neutral	Neutral	Neutral
20 DMA, S & P 500	4458, Below	Bearish	Neutral
50 DMA, S & P 500	4460, Below	Bearish	Neutral
200 DMA, S & P 500	4145, Above	Bullish	Neutral
20 DMA, Nifty	19490, Below	Neutral	Bearish
50 DMA, Nifty	19375, Below	Neutral	Bearish
200 DMA, Nifty	18346, Above	Neutral	Bullish
S & P 500 P/E	25.15	Bearish	Neutral
Nifty P/E	21.98	Neutral	Bearish
India Vix	12.08, -0.49%	Neutral	Neutral
Dollar/Rupee	82.53, -0.74%	Neutral	Bullish
Overall	S & P 500	Nifty
Bullish Indications	9	10
Bearish Indications	9	8
Outlook	Neutral	Bullish
Observation	The S&P 500 rallied and the Nifty was unchanged week. Indicators are mixed for the week. Markets are correcting. Watch those stops.
On the Horizon	Eurozone – German CPI, CPI,  US – GDP, Employment data
*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 rose and the Nifty was unchanged last week. Indicators are mixed for the week. Markets are still oversold, so the bounce is likely to continue early this 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 life highs.

The past week saw US equity markets rise. Most emerging markets rose, as interest rates were little changed. Transports fell. The Baltic dry index fell. The dollar rose. Commodities rose. Valuations continue to be quite expensive, market breadth fell, and the sentiment is now neutral. Fear moderated this week, 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 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 4420 (up) and 4395 (down) on the S&P 500 and 19350 (up) and 19200 (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, though the 2000 level could act as short-term resistance. (Gold exploded almost 8 times higher over the decade following the dot-com 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.