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

 

Asset Class	Weekly Level / Change	Implication for S & P 500		Implication for Nifty*
S & P 500	4105, -0.10%	Neutral	Neutral
Nifty	17599, 1.38%	Neutral **	Bullish
China Shanghai Index	3328, 1.67%	Bullish	Bullish
Gold	2024, 2.79%	Bullish	Bullish
WTIC Crude	80.47, 6.34%	Bullish	Bullish
Copper	4.01, -2.01%	Bearish	Bearish
CRB Index	272, 1.59%	Bullish	Bullish
Baltic Dry Index	1560, 12.31%	Bullish	Bullish
Euro	1.0904, 0.60%	Bullish	Bullish
Dollar/Yen	132.20, -0.44%	Neutral	Neutral
Dow Transports	13966, -3.27%	Bearish	Bearish
Corporate Bonds (ETF)	110.33, 0.66%	Bullish	Bullish
High Yield Bonds (ETF)	91.89, -1.00%	Bearish	Bearish
US 10-year Bond Yield	3.41%, -1.74%	Bullish	Bullish
NYSE Summation Index	-17, 91%	Bullish	Neutral
US Vix	18.40, -1.60%	Bullish	Bullish
Skew	124	Neutral	Neutral
CNN Fear & Greed Index	Greed	Bearish	Bearish
20 DMA, S & P 500	3989, Above	Bullish	Neutral
50 DMA, S & P 500	4029, Above	Bullish	Neutral
200 DMA, S & P 500	3943, Above	Bullish	Neutral
20 DMA, Nifty	17211, Above	Neutral	Bullish
50 DMA, Nifty	17522, Above	Neutral	Bullish
200 DMA, Nifty	17499, Above	Neutral	Bullish
S & P 500 P/E	21.94	Bearish	Neutral
Nifty P/E	20.72	Neutral	Bearish
India Vix	11.80, -8.79%	Neutral	Bullish
Dollar/Rupee	81.87, -0.35%	Neutral	Neutral
Overall	S & P 500	Nifty
Bullish Indications	13	14
Bearish Indications	5	5
Outlook	Bullish	Bullish
Observation	The S&P was unchanged, and the Nifty rallied last week. Indicators are bullish for the week. The markets are back at resistance. Watch those stops.
On the Horizon	US – CPI, PPI, Eurozone – German CPI, UK - GDP
*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&P 500 was unchanged, and the Nifty rallied last week. Indicators are bullish for the week. We are back above resistance near the 50 and 200 DMAs on the S&P 500, as we transition from an inflationary regime to a deflationary collapse. The Nifty is above resistance near its 50 WMA near 17320. The current market is tracking closely the 1973/2008 moves down in the S&P 500, implying a panic low right ahead in the upcoming months (My views do not matter, kindly pay attention to the levels). A dollar rebound is a likely catalyst.

The past week saw US equity markets little changed. Most emerging markets outperformed, as interest rates cooled off. Transports underperformed. The Baltic dry index rebounded. The dollar fell. Commodities rose. Valuations are quite expensive, market breadth improved, and the sentiment is now bullish. Fear has cooled off again, despite possible contagion risk from bank failures. The sudden steepening of the yield curve, with rates falling, is a precursor to the next recession, and most risky assets will underperform under such conditions.

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 bonds 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 encountering resistance near its recent highs. Monthly MACDs on most global markets are still negative. This spells trouble and opens 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 countertrend 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&P 500, 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 contagion risk 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 4120 (up) and 4090 (down) on the S&P 500 and 17700 (up) and 17500 (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 (though technically overbought in the short term) 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.