Market Signals for the US stock market S and P 500 Index and Indian Stock Market Nifty Index for the Week beginning June 05

 

Asset Class	Weekly Level / Change	Implication for S & P 500		Implication for Nifty*
S & P 500	4282, 1.83%	Bullish	Bullish
Nifty	18534, 0.19%	Neutral **	Neutral
China Shanghai Index	3230, 0.55%	Bullish	Bullish
Gold	1964, 0.14%	Neutral	Neutral
WTIC Crude	71.87, -1.84%	Bearish	Bearish
Copper	3.73, 1.58%	Bullish	Bullish
CRB Index	260, -0.39%	Neutral	Neutral
Baltic Dry Index	919, -21.59%	Bearish	Bearish
Euro	1.0708, -0.15%	Neutral	Neutral
Dollar/Yen	139.97, -0.46%	Neutral	Neutral
Dow Transports	14151, 1.78%	Bullish	Bullish
Corporate Bonds (ETF)	107.31, 0.79%	Bullish	Bullish
High Yield Bonds (ETF)	91.38, 0.66%	Bullish	Bullish
US 10-year Bond Yield	3.70%, -3.17%	Bullish	Bullish
NYSE Summation Index	-145, 10%	Bullish	Neutral
US Vix	14.60, -18.66%	Bullish	Bullish
Skew	143	Bearish	Bearish
CNN Fear & Greed Index	Greed	Bearish	Bearish
20 DMA, S & P 500	4164, Above	Bullish	Neutral
50 DMA, S & P 500	4123, Above	Bullish	Neutral
200 DMA, S & P 500	3975, Above	Bullish	Neutral
20 DMA, Nifty	18361, Above	Neutral	Bullish
50 DMA, Nifty	17890, Above	Neutral	Bullish
200 DMA, Nifty	17850, Above	Neutral	Bullish
S & P 500 P/E	24.79	Bearish	Neutral
Nifty P/E	21.58	Neutral	Bearish
India Vix	11.13, -6.51%	Neutral	Bullish
Dollar/Rupee	82.40, -0.20%	Neutral	Neutral
Overall	S & P 500	Nifty
Bullish Indications	12	12
Bearish Indications	5	5
Outlook	Bullish	Bullish
Observation	The S&P 500 and the Nifty rallied last week. Indicators are bullish for the week. The markets are at major resistance, with glaring divergences. Watch those stops.
On the Horizon	Japan – 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&P 500 and the Nifty rose 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 the 20 WMA close to 17800.

The past week saw US equity markets rise. Most emerging markets rose, as interest rates fell. Transports rose. The Baltic dry index fell hard. The dollar was unchanged. Commodities were little changed. Valuations continue to be quite expensive, market breadth rose, and the sentiment is now bullish. Fear has collapsed, as a possible reality check from the debt ceiling agreement looms.

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 for a decline in risk assets across the board. 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 from major support is a likely catalyst.

The S&P 500 is encountering resistance near its recent highs. 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, as downward earnings revisions are underway.

The Fed has aggressively tightened into a recession. Deflationary busts often begin after major inflationary scares. The market has rebounded after correcting significantly, and more is left on the downside. The Dollar, commodities, and bond yields are continuing to flash major warning signs.

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 3600 area is emerging on the S&P 500, and 16000 should arrive on the Nifty in the next few months.

The trend has changed from bullish to bearish and markets risk getting a reality check and smashed by contagion risk from an economic slowdown and a strong dollar. Global yield curves have inverted significantly reflecting a major upcoming recession. The recent steepening of the yield curve, within an inverted context, with rates falling, is a precursor to the next recession, and most risky assets will underperform going forward under such conditions. Looking for significant underperformance in the Nifty going forward on challenging macros.

The critical levels to watch for the week are 4295 (up) and 4270 (down) on the S&P 500 and 18600 (up) and 18450 (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 over the next decade. You can check out last week’s report for a comparison. Love your thoughts and feedback.