Market Signals for the US stock market S and P 500 Index and Indian Stock Market Nifty Index for the Week beginning January 08

 

Asset Class	Weekly Level / Change	Implication for S & P 500	Implication for Nifty*
S & P 500	4697, -1.52%	Bearish	Bearish
Nifty	21731, -0.09%	Neutral **	Neutral
China Shanghai Index	2929, -1.54%	Bearish	Bearish
Gold	2053, -0.93%	Bearish	Bearish
WTIC Crude	73.95, 3.21%	Bullish	Bullish
Copper	3.80, -2.30%	Bearish	Bearish
CRB Index	266, 0.79%	Bullish	Bullish
Baltic Dry Index	2110, 0.76%	Bullish	Bullish
Euro	1.0942, -0.85%	Bearish	Bearish
Dollar/Yen	144.66, 2.55%	Bullish	Bullish
Dow Transports	15509, -2.45%	Bearish	Bearish
Corporate Bonds (ETF)	108.66, -1.81%	Bearish	Bearish
High Yield Bonds (ETF)	93.88, -0.90%	Bearish	Bearish
US 10-year Bond Yield	4.05%, 4.79%	Bearish	Bearish
NYSE Summation Index	986, -9%	Bearish	Neutral
US Vix	13.35, 7.23%	Bearish	Bearish
Skew	133	Neutral	Neutral
CNN Fear & Greed Index	Greed	Bearish	Bearish
20 DMA, S & P 500	4713, Below	Bearish	Neutral
50 DMA, S & P 500	4540, Above	Bullish	Neutral
200 DMA, S & P 500	4369, Above	Bullish	Neutral
20 DMA, Nifty	21398, Above	Neutral	Bullish
50 DMA, Nifty	20378, Above	Neutral	Bullish
200 DMA, Nifty	19249, Above	Neutral	Bullish
S & P 500 P/E	25.95	Bearish	Neutral
Nifty P/E	23.15	Neutral	Bearish
India Vix	12.63, -12.91%	Neutral	Bullish
Dollar/Rupee	83.14, -0.06%	Neutral	Neutral
Overall	S & P 500	Nifty
Bullish Indications	6	8
Bearish Indications	14	12
Outlook	Bearish	Bearish
Observation	The S&P 500 fell and the Nifty was unchanged last week. Indicators are bearish for the week. Markets are correcting from resistance. Watch those stops.
On the Horizon	US – CPI, PPI, 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 fell and the Nifty was unchanged last week. Indicators are bearish for the week. Markets are at resistance. We are transitioning from an inflationary regime to a deflationary collapse. The Nifty has caught up to the upside. We are way overbought short-term and will continue pulling back here sharply to as low as the 50 DMA.

The past week saw US equity markets fall. Most emerging markets fell, as interest rates rose. Transports led the fall. The Baltic dry index rose. The dollar was up. Commodities rose. Valuations continue to be quite expensive, market breadth fell, and the sentiment is now exuberant. Fear rose this week, as a possible reality check from a FED Pivot looms.

After this rally, 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 bounced 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.

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 the riskiest assets will underperform going forward under such conditions. 

The critical levels to watch for the week are 4710 (up) and 4685 (down) on the S&P 500 and 21800 (up) and 21650 (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 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.