Market Signals for the US stock market S and P 500 Index and Indian Stock Market Nifty Index for the Week beginning January 27

 

Asset Class	Weekly Level / Change	Implication for S & P 500	Implication for Nifty*
S & P 500	6101, 1.74%	Bullish	Bullish
Nifty	23092, -0.48%	Neutral **	Neutral
China Shanghai Index	3253, 0.33%	Neutral	Neutral
Gold	2807, 2.11%	Bullish	Bullish
WTIC Crude	74.66, -4.13%	Bearish	Bearish
Copper	4.32, -1.09%	Bearish	Bearish
CRB Index	310, -0.40%	Neutral	Neutral
Baltic Dry Index	778, -21.18%	Bearish	Bearish
Euro	1.0493, 2.16%	Bullish	Bullish
Dollar/Yen	155.98, -0.20%	Neutral	Neutral
Dow Transports	16606, 1.06%	Bullish	Neutral
Corporate Bonds (ETF)	107.12, 0.32%	Neutral	Neutral
High Yield Bonds (ETF)	96.81, 0.37%	Neutral	Neutral
US 10-year Bond Yield	4.62%, -0.13%	Bullish	Bullish
NYSE Summation Index	-33, 88%	Bullish	Neutral
US Vix	14.85, -7.01%	Bullish	Neutral
S & P 500 Skew	173	Bearish	Neutral
CNN Fear & Greed Index	Neutral	Neutral	Neutral
Nifty MMI Index	Extreme Fear	Neutral	Bullish
20 DMA, S & P 500	5960, Above	Bullish	Neutral
50 DMA, S & P 500	5981, Above	Bullish	Neutral
200 DMA, S & P 500	5608, Above	Bullish	Neutral
20 DMA, Nifty	23451, Below	Neutral	Bearish
50 DMA, Nifty	23853, Below	Neutral	Bearish
200 DMA, Nifty	23976, Below	Neutral	Bearish
S & P 500 P/E	30.50	Bearish	Neutral
Nifty P/E	21.09	Neutral	Bearish
India Vix	16.75, 6.33%	Neutral	Bearish
Dollar/Rupee	86.20, -0.43%	Neutral	Neutral
Overall	S & P 500	Nifty
Bullish Indications	10	5
Bearish Indications	5	8
Outlook	Bullish	Bearish
Observation	The S&P rose, and the Nifty fell last week. Indicators are mixed for the week. Markets are topping. Watch those stops.
On the Horizon	US – GDP, FOMC rate decision, Eurozone – German GDP, ECB rate decision, India – Union budget 2025
*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 rose, and the Nifty fell last week. Indicators are mixed for the week. Markets are topping. We are transitioning from an inflationary regime to a deflationary one. The sentiment is neutral, and risk-reward is poor at these levels as divergences develop. Carry trade liquidation may resume in short order, and the S & P is due for a trip to the 200 DMA near 5600. Markets have bounced from oversold levels, and rallies may terminate soon on the S & P. The Nifty has corrected significantly from recent highs and will likely underperform.

The past week saw US equity markets rise. Most emerging markets rose as interest rates were little changed. Transports rose. The Baltic dry index fell. The dollar fell. Commodities were unchanged. Valuations are expensive, market breadth has risen, and the sentiment is neutral. Fear (S&P 500) abated.

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. It 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 rally is a likely catalyst.

The S&P 500 is correcting from 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 as earnings growth peaks. The Fed has aggressively tightened into a recession. Deflationary busts often begin after major inflationary scares. The Dollar, commodities, and bond yields are flashing significant warning signs.

Global yield curves have steepened after inverting significantly, reflecting a significant economic slowdown. 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 6115 (up) and 6090 (down) on the S&P 500 and 23200 (up) and 23000 (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 to own over the next decade. (Gold exploded almost eight 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. I love your thoughts and feedback.