Market Signals for the US stock market S and P 500 Index and Indian Stock Market Nifty Index for the Week beginning October 06

 

Asset Class	Weekly Level / Change	Implications for S&P 500	Implications for Nifty*
S&P 500	6716, 1.09%	Bullish	Bullish
Nifty	24894, 0.97%	Neutral **	Bullish
China Shanghai Index	3883, 1.43%	Bullish	Bullish
Gold	3909, 2.98%	Bullish	Bullish
WTIC Crude	60.88, -6.54%	Bearish	Bearish
Copper	5.11, 7.02%	Bullish	Bullish
CRB Index	299, -1.86%	Bearish	Bearish
Baltic Dry Index	1901, -15.85%	Bearish	Bearish
Euro	1.1743, 0.32%	Neutral	Neutral
Dollar/Yen	147.45, -1.32%	Bearish	Bearish
Dow Transports	15841, 0.70%	Bullish	Neutral
Corporate Bonds (ETF)	111.55, 0.31%	Neutral	Neutral
High-Yield Bonds (ETF)	97.47, -0.39%	Neutral	Neutral
US 10-year Bond Yield	4.12%, -1.62%	Bullish	Bullish
NYSE Summation Index	404, -17.00%	Bearish	Neutral
US Vix	16.65, 8.89%	Bearish	Neutral
S&P 500 Skew	145	Bearish	Neutral
CNN Fear & Greed Index	Neutral	Neutral	Neutral
Nifty MMI Index	Greed	Neutral	Bearish
20 DMA, S&P 500	6628, Above	Bullish	Neutral
50 DMA, S&P 500	6497, Above	Bullish	Neutral
200 DMA, S&P 500	6031, Above	Bullish	Neutral
20 DMA, Nifty	24991, Below	Neutral	Bearish
50 DMA, Nifty	24837, Above	Neutral	Bullish
200 DMA, Nifty	24170, Above	Neutral	Bullish
S&P 500 P/E	31.11	Bearish	Neutral
Nifty P/E	22.01	Neutral	Bearish
India Vix	10.06, -11.95%	Neutral	Bullish
Dollar/Rupee	88.73, 0.07%	Neutral	Neutral
Overall	S&P 500	Nifty
Bullish Indications	9	9
Bearish Indications	8	7
Outlook	Bullish	Bullish
Observation	The S&P and the Nifty rose last week. Indicators are bullish for the week. Markets are about to collapse. Watch those stops.
On the Horizon	US – Employment data
*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 and the Nifty rose last week. Indicators are bullish for the week. Markets are topping and about to collapse. We are transitioning into a deflationary regime, and the risk of a recession has increased significantly. The sentiment is neutral. Carry trade liquidation is about to resume, and the S&P will likely find resistance soon, as we enter bearish seasonality till the end of October. The macroenvironment was already deteriorating rapidly even before the recent tariff issue. The recent massive breakdown in transports (subsequent non-conformation for a possible second time) is quite ominous. Divergences galore. This, combined with oil's recent free fall, has profound recessionary implications. The Nifty has corrected significantly from its recent highs and is likely to underperform in the near future.

The past week saw US equity markets rise. Most emerging markets rose as interest rates fell. Transports were up. The Baltic Dry Index fell. The dollar was unchanged. Commodities fell. Valuations are expensive, market breadth fell, and sentiment is neutral. Volatility (S&P 500) is on the rise.

A currency crisis should resume at any moment and push risky assets to new lows. Deflation is in the air, and bonds are telegraphing just that despite intermittent spikes in yields. 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 closely tracking the 2000 moves down in the S&P 500, implying a panic low is 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 are likely to continue breaking to the downside as earnings growth falters. The Fed is now easing, anticipating a recession. Deflationary busts often begin after major inflationary scares. The Dollar is at major lows, while commodities and bond yields are flashing significant warning signs.

Global yield curves are steepening after having inverted a second time, reflecting the arrival of a significant economic slowdown. This is a precursor to the next recession, and the riskiest assets are likely to underperform in the future under such conditions. 

The critical levels to watch for the week are 6730 (up) and 6705 (down) on the S&P 500 and 25000 (up) and 24800 (down) on the Nifty. A significant breach of the above levels could trigger the next major move in these markets.  High beta/P/E will get torched again and is 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 to gold when this AI bubble bursts. You can check out last week’s report for a comparison. I love your thoughts and feedback.