Market Signals for the US stock market S and P 500 Index and the Indian Stock Market Nifty Index for the Week beginning May 11

 

Asset Class	Weekly Level / Change	Implications for S&P 500	Implications for Nifty*
S&P 500	7399, 2.33%	Bullish	Bullish
Nifty	24176, 0.74%	Neutral **	Bullish
China Shanghai Index	4180, 1.65%	Bullish	Bullish
Gold	4731, 1.86%	Bullish	Bullish
WTIC Crude	95.42, -6.40%	Bearish	Bearish
Copper	6.30, 5.21%	Bullish	Bullish
CRB Index	389, -1.01%	Bearish	Bearish
Baltic Dry Index	2978, 10.87%	Bullish	Bullish
Euro	1.1786, 0.55%	Bullish	Bullish
Dollar/Yen	156.67, -0.15%	Neutral	Neutral
Dow Transports	20199, -1.94%	Bearish	Neutral
Corporate Bonds (ETF)	109.20, 0.55%	Bullish	Bullish
High-Yield Bonds (ETF)	96.52, 0.12%	Neutral	Neutral
US 10-year Bond Yield	4.36%, -0.32%	Neutral	Neutral
NYSE Summation Index	471, 1.00%	Bullish	Neutral
US Vix	17.19, 1.18%	Bearish	Neutral
S&P 500 Skew	138	Neutral	Neutral
CNN Fear & Greed Index	Greed	Bearish	Neutral
Nifty MMI Index	Greed	Neutral	Bearish
20 DMA, S&P 500	7154, Above	Bullish	Neutral
50 DMA, S&P 500	6863, Above	Bullish	Neutral
200 DMA, S&P 500	6753, Above	Bullish	Neutral
20 DMA, Nifty	24155, Above	Neutral	Bullish
50 DMA, Nifty	23994, Above	Neutral	Bullish
200 DMA, Nifty	25069, Above	Neutral	Bullish
S&P 500 P/E	31.83	Bearish	Neutral
Nifty P/E	21.00	Neutral	Bearish
India Vix	16.84, -8.78%	Neutral	Bullish
Dollar/Rupee	94.44, -0.49%	Neutral	Neutral
Overall	S&P 500	Nifty
Bullish Indications	11	12
Bearish Indications	6	4
Outlook	Bullish	Bullish
Observation	The S&P500 and the Nifty rose last week. Indicators are bullish for the week. Markets are topping. Watch those stops.
On the Horizon	US – Middle East war, CPI, PPI, UK – GDP
*Nifty	India’s Benchmark Stock Market Index
Raw Data	Data courtesy stockcharts.com, investing.com, multpl.com, nseindia.com, tickertape.in, forexfactory.com
**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 are about to collapse. We got the oversold bounce to new highs and will sell off soon amid glaring divergences in transports, high yield, market breadth, volatility, etc. We are transitioning into a deflationary regime, and the risk of a recession has increased significantly. The sentiment is greedy. Carry trade liquidation is about to resume, and the S&P will likely find resistance on any bounces. The macroenvironment was already deteriorating rapidly even before the ongoing Middle East war. The massive AI bubble is about to burst. This has profound recessionary implications. The Nifty has corrected and is likely to underperform in the near term. The “Sell in May and Go Away” trade is about to play out.

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

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, suggesting a panic low is right around the corner in the coming months. (My views do not matter; kindly pay attention to the levels.) A dollar rally is a likely catalyst.

The S&P 500 is at new 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 as this AI bubble deflates. 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 rebounding from major lows, while commodities and bond yields are flashing significant warning signs.

Global yield curves are steepening after inverting a third time in the last 2 years, 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 7410 (up) and 7385 (down) on the S&P 500 and 24250 (up) and 24100 (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 (currently correcting). 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.