Market Signals for the US stock market S and P 500 Index and Indian Stock Market Nifty Index for the Week beginning August 05

 

Asset Class	Weekly Level / Change	Implication for S & P 500	Implication for Nifty*
S & P 500	5347, -2.06%	Bearish	Bearish
Nifty	24718, -0.47%	Neutral **	Neutral
China Shanghai Index	2905, 0.50%	Bullish	Bullish
Gold	2486, 3.39%	Bullish	Bullish
WTIC Crude	74.14, -3.91%	Bearish	Bearish
Copper	4.13, 0.55%	Bullish	Bullish
CRB Index	270, -2.62%	Bearish	Bearish
Baltic Dry Index	1675, -7.36%	Bearish	Bearish
Euro	1.0911, 0.50%	Bullish	Bullish
Dollar/Yen	146.54, -4.67%	Bearish	Bearish
Dow Transports	15382, -3.38%	Bearish	Neutral
Corporate Bonds (ETF)	110.60, 1.83%	Bullish	Bullish
High Yield Bonds (ETF)	94.79, -0.79%	Bearish	Bearish
US 10-year Bond Yield	3.79%, -9.62%	Bullish	Bullish
NYSE Summation Index	646, 5%	Bullish	Neutral
US Vix	23.39, 42.71%	Bearish	Neutral
S & P 500 Skew	140	Bearish	Neutral
CNN Fear & Greed Index	Fear	Bullish	Neutral
Nifty MMI Index	Greed	Neutral	Bearish
20 DMA, S & P 500	5527, Below	Bearish	Neutral
50 DMA, S & P 500	5450, Below	Bearish	Neutral
200 DMA, S & P 500	5008, Above	Bullish	Neutral
20 DMA, Nifty	24588, Above	Neutral	Bullish
50 DMA, Nifty	23840, Above	Neutral	Bullish
200 DMA, Nifty	21974, Above	Neutral	Bullish
S & P 500 P/E	27.94	Bearish	Neutral
Nifty P/E	23.09	Neutral	Bearish
India Vix	14.32, 16.92%	Neutral	Bearish
Dollar/Rupee	83.79, 0.11%	Neutral	Neutral
Overall	S & P 500	Nifty
Bullish Indications	9	9
Bearish Indications	12	9
Outlook	Bearish	Neutral
Observation	The S&P and the Nifty fell last week. Indicators are bearish for the week. Markets are correcting from resistance. Watch those stops.
On the Horizon	Eurozone –German CPI, India – RBI rate decision
*Nifty	India’s Benchmark Stock Market Index
Raw Data	Data courtesy stockcharts.com, investing.com, multpl.com, nseindia.com, tickertape.in
**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. Markets are correcting among developing divergences. We are transitioning from an inflationary regime to a deflationary collapse. The markets are oversold and a bounce is due, after which carry trade liquidation should resume. The Nifty is also near new highs and will likely underperform.

The past week saw US equity markets fall. Most emerging markets fell, even as interest fell. Transports fell. The Baltic dry index fell. The dollar fell. Commodities fell. Valuations continue to be quite expensive, market breadth rose, and the sentiment is now bearish. Fear (S&P 500) rose this week, as a possible FED Pivot looms.

After this rally, a 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 near all-time 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 earnings growth peaks.

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

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 5360 (up) and 5335 (down) on the S&P 500 and 24800 (up) and 24650 (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 again and will likely prove to be a sell on every rise. Gold is increasingly looking like the asset class, (though overextended short-term) 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.