Market Signals for the US stock market S and P 500 Index and Indian Stock Market Nifty Index for the Week beginning August 19

 

Asset Class	Weekly Level / Change	Implication for S & P 500	Implication for Nifty*
S & P 500	5554, 3.93%	Bullish	Bullish
Nifty	24541, 0.71%	Neutral **	Bullish
China Shanghai Index	2879, 0.60%	Bullish	Bullish
Gold	2546, 2.94%	Bullish	Bullish
WTIC Crude	75.49, -1.76%	Bearish	Bearish
Copper	4.15, 3.94%	Bullish	Bullish
CRB Index	275, -0.19%	Neutral	Neutral
Baltic Dry Index	1691, 1.26%	Bullish	Bullish
Euro	1.1028, 1.03%	Bullish	Bullish
Dollar/Yen	147.58, 0.66%	Bullish	Bullish
Dow Transports	15673, 2.21%	Bullish	Neutral
Corporate Bonds (ETF)	111.19, 1.35%	Bullish	Bullish
High Yield Bonds (ETF)	96.18, 1.19%	Bullish	Bullish
US 10-year Bond Yield	3.88%, -1.44%	Bullish	Bullish
NYSE Summation Index	560, 15%	Bullish	Neutral
US Vix	14.80, -27.34%	Bullish	Neutral
S & P 500 Skew	143	Bearish	Neutral
CNN Fear & Greed Index	Extreme Fear	Bullish	Neutral
Nifty MMI Index	Extreme Fear	Neutral	Bullish
20 DMA, S & P 500	5412, Above	Bullish	Neutral
50 DMA, S & P 500	5464, Above	Bullish	Neutral
200 DMA, S & P 500	5065, Above	Bullish	Neutral
20 DMA, Nifty	24477, Above	Neutral	Bullish
50 DMA, Nifty	24108, Above	Neutral	Bullish
200 DMA, Nifty	22177, Above	Neutral	Bullish
S & P 500 P/E	29.02	Bearish	Neutral
Nifty P/E	22.80	Neutral	Bearish
India Vix	14.40, -6.08%	Neutral	Bullish
Dollar/Rupee	83.87, -0.08%	Neutral	Neutral
Overall	S & P 500	Nifty
Bullish Indications	17	16
Bearish Indications	3	2
Outlook	Bullish	Bullish
Observation	The S&P and the Nifty rose last week. Indicators are bullish for the week. Markets are getting back to resistance. Watch those stops.
On the Horizon	Eurozone – CPI, US – Jackson Hole symposium
*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 rose last week. Indicators are bullish for the week. Markets are back at resistance. We are transitioning from an inflationary regime to a deflationary collapse. The sentiment is bearish, giving the current bounce more room, after which carry trade liquidation should resume. The Nifty is near new highs and will likely underperform after this bounce.

The past week saw US equity markets rise. Most emerging markets rose as interest rates fell. Transports rose. The Baltic dry index rose. The dollar fell. Commodities were unchanged. Valuations are expensive, market breadth improved, 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. 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 5565 (up) and 5540 (down) on the S&P 500 and 24650 (up) and 24450 (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.