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

 

Asset Class	Weekly Level / Change	Implication for S & P 500		Implication for Nifty*
S & P 500	4137, 1.62%	Bullish	Bullish
Nifty	17854, 1.42%	Neutral **	Bullish
China Shanghai Index	3263, -0.04%	Neutral	Neutral
Gold	1878, -3.04%	Bearish	Bearish
WTIC Crude	73.23, -8.84%	Bearish	Bearish
Copper	4.03, -4.53%	Bearish	Bearish
CRB Index	266, -4.13%	Bearish	Bearish
Baltic Dry Index	621, -8.14%	Bearish	Bearish
Euro	1.0795, -0.66%	Bearish	Bearish
Dollar/Yen	131.19, 1.03%	Bullish	Bullish
Dow Transports	15518, 7.15%	Bullish	Bullish
Corporate Bonds (ETF)	110.54, 0.04%	Neutral	Neutral
High Yield Bonds (ETF)	93.67, 0.30%	Neutral	Neutral
US 10-year Bond Yield	3.52%, 0.23%	Neutral	Neutral
NYSE Summation Index	1105, 25%	Bullish	Neutral
US Vix	18.33, -0.97%	Bullish	Bullish
Skew	123	Neutral	Neutral
CNN Fear & Greed Index	Extreme Greed	Bearish	Bearish
20 DMA, S & P 500	4008, Above	Bullish	Neutral
50 DMA, S & P 500	3957, Above	Bullish	Neutral
200 DMA, S & P 500	3950, Above	Bullish	Neutral
20 DMA, Nifty	17898, Below	Neutral	Bearish
50 DMA, Nifty	18187, Below	Neutral	Bearish
200 DMA, Nifty	17294, Above	Neutral	Bullish
S & P 500 P/E	22.11	Bearish	Neutral
Nifty P/E	20.86	Neutral	Bearish
India Vix	14.40, -16.87%	Neutral	Bullish
Dollar/Rupee	82.23, 0.89%	Neutral	Bearish
Overall	S & P 500	Nifty
Bullish Indications	8	7
Bearish Indications	8	11
Outlook	Neutral	Bearish
Observation	The S and P and the Nifty rallied last week. Indicators are mixed for the week. The markets are back at resistance. Watch those stops.
On the Horizon	Eurozone – German CPI, EU leaders summit, UK – GDP, India – RBI rate decision
*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 rallied last week. Indicators are mixed for the week. The recent bounce has taken out resistance near the 50 WMA close to 4030 and the upside is likely capped as we transition from an inflationary regime to a deflationary collapse. The market is tracking closely the 1973 move down in the S and P, implying a panic low right ahead in the upcoming months (My views don’t matter, kindly pay attention to the levels). A dollar rebound being the likely catalyst.

The past week saw US equity markets rally, as high beta outperformed. Emerging market performances were mixed, as interest rates were little changed. Transports led the way up. The Baltic dry index continued to crater. The dollar rose. Commodities fell across the board. Valuations are very expensive, market breadth improved, and the sentiment is improving and close to extremes. No fear yet though, as complacency reigns supreme.

The recent currency crisis should resume and push risky assets to new lows across the board. Deflation is in the air despite the recent inflationary spike and the Chinese Yuan, Euro, commodities, and Yen are telegraphing just that. Feels like a 2008-style recession trade has begun, with a potential decline in risk assets across the board.

The S&P 500 is finally above the 200 DMA, while this is a short-term positive, 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 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 should continue breaking to the downside across the board. Downward earnings revisions are underway.

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

The epic correction signal occurred with retail, hedge funds, and speculators all in, in January 2022, suggesting a major top is in. The moment of reckoning is here.   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 rallied over 120% in our most recent rally of the COVID-19 lows. After extreme euphoria for the indices, a highly probable selloff to the 3300 area is emerging on the S and P, and 15000 should arrive on the Nifty in the next few months. The Nifty which has been out-performing will likely catch up with other assets on the downside soon.

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. Global yield curves have inverted significantly reflecting a major upcoming recession. Looking for significant underperformance in the Nifty going forward on challenging macros. 

The critical levels to watch for the week are 4150 (up) and 4125 (down) on the S & P 500 and 17950 (up) and 17750 (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 will get 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. You can check out last week’s report for a comparison. Love your thoughts and feedback.