Market Signals for the US stock market S and P 500 Index and Indian Stock Market Nifty Index for the Week beginning August 12

 

Asset Class	Weekly Level / Change	Implication for S & P 500	Implication for Nifty*
S & P 500	5344, -0.04%	Neutral	Neutral
Nifty	24368, -1.42%	Neutral **	Bearish
China Shanghai Index	2862, -1.49%	Bearish	Bearish
Gold	2473, 0.15%	Neutral	Neutral
WTIC Crude	77.46, 4.52%	Bullish	Bullish
Copper	3.98, -2.90%	Bearish	Bearish
CRB Index	276, 2.16%	Bullish	Bullish
Baltic Dry Index	1670, -0.30%	Neutral	Neutral
Euro	1.0916, 0.07%	Neutral	Neutral
Dollar/Yen	146.61, 0.05%	Neutral	Neutral
Dow Transports	15335, -0.31%	Neutral	Neutral
Corporate Bonds (ETF)	109.71, -0.80%	Bearish	Bearish
High Yield Bonds (ETF)	95.05, 0.27%	Neutral	Neutral
US 10-year Bond Yield	3.94%, 3.89%	Bearish	Bearish
NYSE Summation Index	485, -25%	Bearish	Neutral
US Vix	20.26, -12.91%	Bullish	Neutral
S & P 500 Skew	145	Bearish	Neutral
CNN Fear & Greed Index	Extreme Fear	Bullish	Neutral
Nifty MMI Index	Extreme Fear	Neutral	Bullish
20 DMA, S & P 500	5422, Below	Bearish	Neutral
50 DMA, S & P 500	5446, Below	Bearish	Neutral
200 DMA, S & P 500	5032, Above	Bullish	Neutral
20 DMA, Nifty	24538, Below	Neutral	Bearish
50 DMA, Nifty	24006, Above	Neutral	Bullish
200 DMA, Nifty	22109, Above	Neutral	Bullish
S & P 500 P/E	27.92	Bearish	Neutral
Nifty P/E	22.67	Neutral	Bearish
India Vix	15.34, 7.09%	Neutral	Bearish
Dollar/Rupee	83.95, 0.18%	Neutral	Neutral
Overall	S & P 500	Nifty
Bullish Indications	5	5
Bearish Indications	8	8
Outlook	Bearish	Bearish
Observation	The S&P was unchanged 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 was unchanged, 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 unchanged. Most emerging markets rose as interest rates fell. Transports were unchanged. The Baltic dry index was little changed. The dollar was little changed as well. Commodities rose. Valuations continue to be expensive, market breadth deteriorated, and the sentiment is bearish. This week, fear (S&P 500) abated as a possible FED Pivot looms.

After this rally, a currency crisis should resume and push risky assets to new lows across the board. Despite the recent inflationary spike, deflation is in the air, 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 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 5355 (up) and 5330 (down) on the S&P 500 and 24450 (up) and 24300 (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 likely be a sell on every rise. Gold increasingly looks 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. 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.