Stock Market Panic Just Beginning?

Markets have been taking a turn for the worse on fears of a global trade war. A look at the Fear and Greed Index computed by CNNMoney shows that investor sentiment is hitting record lows:

However the Vix is yet to take out the February highs and suggests that there is no major panic yet:

Also the NYSE McClellan Summation Index (courtesy stockcharts) has just begun breaking down again following the recent rally and has more room to fall suggesting more selling ahead:

Taken together we probably are headed for more selling and panic that should take us a lot lower to the major break out zone of the S and P 500 near 2400 first before any relief rallies occur.

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

Indicator	Weekly Level / Change	Implication for S & P 500	Implication for Nifty*
S & P 500	2752, -1.24%	Bearish	Bearish
Nifty	10195, -0.31%	Neutral **	Neutral
China Shanghai Index	3270, -1.13%	Bearish	Bearish
Gold	1312, -0.88%	Bearish	Bearish
WTIC Crude	62.41, 0.60%	Bullish	Bullish
Copper	3.11, -0.91%	Bearish	Bearish
Baltic Dry Index	1150, -4.25%	Bearish	Bearish
Euro	1.2296, -0.09%	Neutral	Neutral
Dollar/Yen	106.04, -0.69%	Bearish	Bearish
Dow Transports	10684, -0.52%	Bearish	Bearish
High Yield (ETF)	35.97, -0.33%	Neutral	Neutral
US 10 year Bond Yield	2.85%, -1.59%	Bullish	Bullish
Nyse Summation Index	283, 73.22%	Bullish	Neutral
US Vix	15.80, 7.92%	Bearish	Bearish
Skew	147	Bearish	Bearish
20 DMA, S and P 500	2735, Above	Bullish	Neutral
50 DMA, S and P 500	2749, Above	Bullish	Neutral
200 DMA, S and P 500	2579, Above	Bullish	Neutral
20 DMA, Nifty	10380, Below	Neutral	Bearish
50 DMA, Nifty	10594, Below	Neutral	Bearish
200 DMA, Nifty	10161, Above	Neutral	Bullish
India Vix	15.22, 4.78%	Neutral	Bearish
Dollar/Rupee	65.08, 0.23%	Neutral	Neutral
Overall	S & P 500	Nifty
Bullish Indications	6	3
Bearish Indications	9	12
Outlook	Bearish	Bearish
Observation	The S and P 500 and the Nifty fell last week. Indicators are bearish. The markets have made important tops. Time to watch those stops.
On the Horizon	Australia – RBA minutes, Employment data, New Zealand – RBNZ rate decision, Euro Zone – German ZEW economic sentiment, German PMI, German IFO business climate index, UK – CPI, Employment data, Retail sales, BOE rate decision, U.S – Home sales, Oil inventories, FOMC rate decision, Durable goods, Canada – CPI, Retail sales, Russia – Rate decision
*Nifty	India’s Benchmark Stock Market Index
Raw Data	Courtesy Google finance, Stock charts, investing.com
**Neutral	Changes less than 0.5% are considered neutral

Image from marketwatch.com

The S and P 500 and the Nifty fell last week. Indicators are bearish for the upcoming week. Quantitative tightening by the FED is yet to be priced in fully. The markets are still trading well over 3 standard deviations above their long term averages from which corrections usually result. Under performance in high yield and other risk assets are flashing warning signs. An interest rate shock can’t be ruled out. Indian market volatility is still below US market volatility so there is complacency and some catch up left on the down side. The critical levels to watch are 2765 (up) and 2740 (down) on the S & P and 10300 (up) and 10100 (down) on the Nifty. A significant breach of the above levels could trigger the next big move in the above markets. You can check out last week’s report for a comparison. Love your thoughts and feedback.

Bitcoin Signalling Major Risk Off Trade?

A look at the relationship between bitcoin returns and other asset class returns over the last year throws up some interesting details. There is a weak inverse relationship between bitcoin returns and the 10 year bond yield changes but the relationship between other asset class returns and bitcoin returns is not statistically significant. This suggests a continued melt down in bitcoin is a precursor to higher bond yields which could trigger a move out of risky assets:

Bitcoin Returns Vs Other Asset Class Returns	Correlation	Significance
S & P 500	0.156	0.273
Ten Year Bond Yield	-0.340	0.015
Euro	0.034	0.813
Gold	0.047	0.743
Copper	-0.160	0.261
Crude	-0.180	0.207

A look at the relationship of bitcoin itself with other asset classes over the last year reveals some additional info. We can see that bitcoin shows a strong positive relationships with most asset classes and the ten year bond yield and a strong negative relationship with copper. This suggests that the recent sell off in bitcoin could be a precursor to a major risk off trade:

Bitcoin Vs Other Asset Classes	Correlation	Significance
S & P 500	0.860	0.000
Ten Year Bond Yield	0.530	0.000
Euro	0.673	0.000
Gold	0.476	0.000
Copper	-0.879	0.000
Crude Oil	0.800	0.000