Is the Rupee sending a warning signal to the stock market?

The last time there was significant Rupee weakness was back in August 2013 when the Nifty crashed closed to 20% led by bank stocks that crashed over 30%. Fast forward to today and significant Rupee weakness has started to re-emerge with the Rupee recently breaching the 64 level.

This has yet again caused bank stocks to underperform with the bank nifty down close to 10% from recent highs and further under performance is likely if the Rupee sells off further.

This would also prevent rates from coming down in the short term which is not good for the overall economy and the stock market.

Recently Indian stock stock market volatility has significantly exceeded US stock market volatility with the India vix crossing 19, yet another warning sign.

The stage appears to be set for significant equity underperformance in 2015.

S and P 500 VIX Ratio Suggestive of a Topping Process

It is noteworthy that the Vix is no longer making new lows as the S and P 500 is making new highs. The S and P Vix ratio is making a long term rounding top, which is highly suggestive of a near term topping process in the S and P.There have been no new highs in this ratio in more than 11 months, suggesting that volatility is outperforming the market and may surge upwards in the upcoming months. Chart courtesy StockCharts.com.

Transports S and P 500 ratio, No new highs in more than 1 year

For a healthy advance in the market according to dow theory the transports ought to be making or conforming new highs in the broader market. Taking a look at the transports S and P 500 ratio, there has been significant underperformance of the transports of late, with no new highs in the transports and consequently the transports s and p 500 ratio since the December of last year. A major bearish divergence. Chart courtesy StockCharts.com.