Market Signals for the US stock market S and P 500 Index and Indian Stock Market Nifty Index for the Week beginning October 10

 

Indicator	Weekly Level / Change	Implication for S & P 500	Implication for Nifty*
S & P 500	3640, 1.51%	Bullish	Bullish
Nifty	17315, 1.29%	Neutral **	Bullish
China Shanghai Index	3024, 0.00%	Neutral	Neutral
Gold	1702, 1.78%	Bullish	Bullish
WTIC Crude	93.20, 17.25%	Bullish	Bullish
Copper	3.38, - 0.35%	Neutral	Neutral
Baltic Dry Index	1961, 11.42%	Bullish	Bullish
Euro	0.9745, - 0.55%	Bearish	Bearish
Dollar/Yen	145.35, 0.41%	Neutral	Neutral
Dow Transports	12477, 3.48%	Bullish	Bullish
Corporate Bonds (ETF)	102.42, - 0.03%	Neutral	Neutral
High Yield Bonds (ETF)	88.57, 0.82%	Bullish	Bullish
US 10-year Bond Yield	3.89%, 2.03%	Bearish	Bearish
NYSE Summation Index	-974, - 3%	Bearish	Neutral
US Vix	31.36, - 0.82%	Bullish	Bullish
Skew	122	Neutral	Neutral
CNN Fear & Greed	Extreme Fear	Bullish	Bullish
20 DMA, S & P 500	3782, Below	Bearish	Neutral
50 DMA, S & P 500	3986, Below	Bearish	Neutral
200 DMA, S & P 500	4190, Below	Bearish	Neutral
20 DMA, Nifty	17448, Below	Neutral	Bearish
50 DMA, Nifty	17472, Below	Neutral	Bearish
200 DMA, Nifty	16982, Above	Neutral	Bullish
S & P 500 P/E	18.39	Bearish	Neutral
Nifty P/E	20.90	Neutral	Bearish
India Vix	18.81, - 5.88%	Neutral	Bullish
Dollar/Rupee	82.83, 1.62%	Neutral	Bearish
Overall	S & P 500	Nifty
Bullish Indications	8	11
Bearish Indications	7	6
Outlook	Bullish	Bullish
Observation	The S and P and the Nifty rallied last week. Indicators are bullish for the week. The markets are on the verge of making new lows. Watch those stops.
On the Horizon	US – PPI, CPI, UK – Employment data, GDP, Eurozone – German CPI
*Nifty	India’s Benchmark Stock Market Index
Raw Data	Courtesy Stock charts, investing.com, multpl.com, NSE
**Neutral	Changes less than 0.5% are considered neutral

 

The S and P and the Nifty rose last week. Indicators are bullish for the week, but any bullishness is likely to be short-lived. We have been selling off from resistance near the 200 DMA on the S & P and the sell-off is likely to continue with bounces being sold into.  The October swoon is here tracking closely the 2008 move down in the S and P.

The past week saw a rise in global markets, despite a continued rise in interest rates. Transports are leading on the downside but rebounded last week after new recent lows. The Baltic dry index continues to rebound after absolutely cratering in recent months. The dollar gained following a hawkish FED and is close to recent highs. Commodities rebounded. The Nifty which has been out-performing will likely catch up with other assets on the downside soon. Valuations are expensive, market breadth is weakening, and the sentiment is strongly negative.

The upcoming currency crisis should push risky assets to new lows across the board. Deflation is in the air despite the recent inflationary spike and the Chinese Yuan, Euro, government bonds, and commodities are telegraphing just that. Feels like a 2000-style recession trade has begun, with a decline in risk assets across the board. (My views don’t matter, kindly pay attention to the levels).

The S&P 500 is below the 200 DMA and recently failed at this important mark, after spending a very long time above it, and its 200 DMA is declining. Monthly MACDs on most global markets are still negative. This spells trouble and opens up significant downside risk ahead. We have got bounces 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 breaking to the downside across the board. Downward earnings revisions are likely soon.

The Fed is aggressively tightening into a recession. Tail risk while moderating is still high.  Deflationary busts often begin after major inflationary scares. The market has corrected significantly and more is left on the downside. The Dollar, commodities, transports, and, bond yields are continuing to flash major warning signs despite the recent counter-trend move up.

The epic correction signal occurred with retail, hedge funds, and speculators all in, in the recent melt-up in January, suggesting a major top is in. The moment of reckoning is here.  Technicals are tracking fundamentals and have recently turned bearish. With extremely high valuations, a crash is on the menu. Low volatility suggests complacency and downside ahead.

We rallied 46% right after the Great Depression (the 1930s) first collapse and we have rallied over 120% in our most recent rally of the lows in the last 2-year period. After extreme euphoria for the indices, a highly probable selloff to the 3500 area is emerging on the S and P, and 15000 should arrive on the Nifty in the next few months. 

The trend has changed from bullish to bearish and the markets are getting a reality check and getting smashed by rising rates and a strong dollar. Looking for significant underperformance in the Nifty going forward on rapidly deteriorating macros. Yield curves are inverting yet again reflecting a major upcoming recession. 

The critical levels to watch for the week are 3655 (up) and 3625 (down) on the S & P 500 and 17400 (up) and 17250 (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 is getting torched yet again and will likely prove to be a sell on every rise. Gold is increasingly looking like the asset class to own in the upcoming decade despite the recent selloff. You can check out last week’s report for a comparison. Love your thoughts and feedback.