Market Signals for the US stock market S and P 500 Index and Indian Stock Market Nifty Index for the Week beginning August 16

 

Indicator	Weekly Level / Change	Implication for S & P 500	Implication for Nifty*
S & P 500	4468, 0.71%	Bullish	Bullish
Nifty	16529, 1.79%	Neutral **	Bullish
China Shanghai Index	3516, 1.68%	Bullish	Bullish
Gold	1782, 1.05%	Bullish	Bullish
WTIC Crude	68.21, -0.10%	Neutral	Neutral
Copper	4.36, 1.29%	Bullish	Bullish
Baltic Dry Index	3566, 5.78%	Bullish	Bullish
Euro	1.1796, 0.31%	Neutral	Neutral
Dollar/Yen	109.60, -0.59%	Bearish	Bearish
Dow Transports	14927, 2.93%	Bullish	Bullish
High Yield (Bond ETF)	109.16, 0.06%	Neutral	Neutral
US 10 year Bond Yield	1.28%, -1.71%	Bullish	Bullish
NYSE Summation Index	183, 28.41%	Bullish	Neutral
US Vix	15.43, -4.46%	Bullish	Bullish
Skew	160	Bearish	Bearish
20 DMA, S & P 500	4404, Above	Bullish	Neutral
50 DMA, S & P 500	4332, Above	Bullish	Neutral
200 DMA, S & P 500	3987, Above	Bullish	Neutral
20 DMA, Nifty	16017, Above	Neutral	Bullish
50 DMA, Nifty	15865, Above	Neutral	Bullish
200 DMA, Nifty	14609, Above	Neutral	Bullish
S & P 500 P/E	34.85	Bearish	Neutral
Nifty P/E	26.51	Neutral	Bearish
India Vix	12.99, 3.03%	Neutral	Bearish
Dollar/Rupee	74.24, 0.00%	Neutral	Neutral
Overall	S & P 500	Nifty
Bullish Indications	12	12
Bearish Indications	3	4
Outlook	Bullish	Bullish
Observation	The S and P and the Nifty rallied last week. Indicators are bullish for the week. The markets are beginning a correction. Watch those stops.
On the Horizon	UK – Employment data, CPI, Eurozone – CPI, China – PBOC rate decision, Japan - 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 and P and the Nifty rallied last week. Indicators are bullish for the week. Deflation is in the air. Markets are making new highs amid loads of divergences and a big move beckons in a seasonally weak period for risk assets. Earnings revisions have been very good but it is already in the price. Typical late-cycle FED put stuff is leading to a taper tantrum and an imminent top. Tail risk has skyrocketed with the Skew/Vix ratio recently touching double digits. The market is about to begin an epic correction. Deflationary busts often begin after inflationary scares (the market is calling the Fed’s bluff) and long bonds are telegraphing just that. Transports, the Dollar, market breadth, commodities, and the skew are flashing major warning signs. The epic correction signal is alive and well with retail, hedge funds, and speculators all in, despite the recent melt-up, suggesting a major top is imminent. The moment of reckoning is very near.  Technicals are about to track fundamentals and turn bearish. The market is yet to price in one of the worst earnings decline periods in stock market history. With extremely high valuations, a crash is on the menu. Extremely low volatility suggests complacency and downside ahead.

We rallied 46% right after the great depressions (1930’s) first collapse and we have rallied over 100% in our most recent rally of the lows in the last 12 month period. After extreme euphoria for the indices, a highly probable selloff to the 3900 area is emerging on the S and P, and 13000 should arrive on the Nifty in the next few months. The FED is repeating the Japan experiment and the 3 lost decades in Japan (1989-2019) are set to repeat across the globe. SPX 1800 and lower in a year and we stay there till 2030, scary? The markets are very close to an epic meltdown and the SPX is headed way lower.

The markets are overvalued, overbought and out of touch with economic realities. Long term, the epic meltdown is set to continue resulting in a 5 year plus bear market with lot lower levels that may be as low as 800 on the S and P. QE forever from the FED is about to trigger the deflationary collapse of the century as we make a major top in global equity markets. The market is looking like the short of a lifetime with topping action in the transports, other global indices, and commodities. High valuations continue.

The recent global virus epidemic (black swan) has dented global GDP significantly and will usher in a depression much faster than most think. The trend is about to change from bullish to bearish and the markets are about to get smashed by a rebounding dollar. Looking for significant underperformance in the Nifty going forward on rapidly deteriorating macros. A 5-year deflationary wave has started in key asset classes like the Euro, stocks, and commodities amidst several bearish divergences and overstretched valuations.

We are entering a multi-year great depression. The markets are still trading well over 3 standard deviations above their long-term averages from which corrections usually result. Tail risk has been very high of late, as interest rates are plunging yet again reflecting a major recession. The critical levels to watch for the week are 4480 (up) and 4455 (down) on the S & P 500 and 16600 (up) and 16450 (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 about to get torched soon (despite the bullish consensus emerging). You can check out last week’s report for a comparison. Love your thoughts and feedback.

Inter Market Divergences

 With the stock markets hitting new highs some inter-market divergences have started to appear. Let's take a look at a few of them. The first chart looks at the SPX versus the Transports. You can see the marked divergence in the last few months with transports not confirming new highs in the SPX:

Next, we look at SPX vs Gold. Gold is a big beneficiary of liquidity in the system and often leads the SPX. Again there is a notable divergence developing:

Taking a look at SPX vs Crude shows a smaller divergence that has developed recently:

The AUDJPY currency cross is a good measure of risk appetite. Note the marked divergence developing:

Lastly, the SPX vs VIX chart reveals the VIX not making new lows for new highs in the SPX:

While these divergences may not matter with central banks flooding the markets with liquidity, once the liquidity shows signs of reversing, they may prove useful in determining what lies ahead.

Market Signals for the US stock market S and P 500 Index and Indian Stock Market Nifty Index for the Week beginning August 09

 

Indicator	Weekly Level / Change	Implication for S & P 500	Implication for Nifty*
S & P 500	4437, 0.94%	Bullish	Bullish
Nifty	16238, 3.01%	Neutral **	Bullish
China Shanghai Index	3458, 1.79%	Bullish	Bullish
Gold	1764, -2.96%	Bearish	Bearish
WTIC Crude	67.89, -8.19%	Bearish	Bearish
Copper	4.34, -3.56%	Bearish	Bearish
Baltic Dry Index	3371, 2.40%	Bullish	Bullish
Euro	1.1761, -0.92%	Bearish	Bearish
Dollar/Yen	110.24, 0.49%	Neutral	Neutral
Dow Transports	14502, 0.29%	Neutral	Neutral
High Yield (Bond ETF)	109.09, -0.62%	Bearish	Bearish
US 10 year Bond Yield	1.31%, 6.48%	Bearish	Bearish
NYSE Summation Index	143, 9.29%	Bullish	Neutral
US Vix	16.15, -11.46%	Bullish	Bullish
Skew	148	Bearish	Bearish
20 DMA, S & P 500	4383, Above	Bullish	Neutral
50 DMA, S & P 500	4307, Above	Bullish	Neutral
200 DMA, S & P 500	3962, Above	Bullish	Neutral
20 DMA, Nifty	15880, Above	Neutral	Bullish
50 DMA, Nifty	15788, Above	Neutral	Bullish
200 DMA, Nifty	14497, Above	Neutral	Bullish
S & P 500 P/E	34.61	Bearish	Neutral
Nifty P/E	26.51	Neutral	Bearish
India Vix	12.61, -1.52%	Neutral	Bullish
Dollar/Rupee	74.24, -0.13%	Neutral	Neutral
Overall	S & P 500	Nifty
Bullish Indications	8	9
Bearish Indications	8	8
Outlook	Neutral	Bullish
Observation	The S and P and the Nifty rallied last week. Indicators are mixed for the week. The markets are beginning a correction. Watch those stops.
On the Horizon	UK – GDP, USA – CPI, PPI
*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. Deflation is in the air. Markets are failing at new highs amid loads of divergences and a big move beckons in a seasonally weak period for risk assets. Earnings revisions have been very good but it is already in the price. Typical late-cycle FED put stuff is leading to a taper tantrum and an imminent top. Tail risk has skyrocketed with the Skew/Vix ratio recently touching double digits. The market is about to begin an epic correction. Deflationary busts often begin after inflationary scares (the market is calling the Fed’s bluff) and long bonds are telegraphing just that. Transports, the Dollar, market breadth, commodities, and the skew are flashing major warning signs. The epic correction signal is alive and well with retail, hedge funds, and speculators all in, despite the recent melt-up, suggesting a major top is imminent. The moment of reckoning is very near.  Technicals are about to track fundamentals and turn bearish. The market is yet to price in one of the worst earnings decline periods in stock market history. With extremely high valuations, a crash is on the menu. Extremely low volatility suggests complacency and downside ahead.

We rallied 46% right after the great depressions (1930’s) first collapse and we have rallied over 100% in our most recent rally of the lows in the last 12 month period. After extreme euphoria for the indices, a highly probable selloff to the 3900 area is emerging on the S and P, and 13000 should arrive on the Nifty in the next few months. The FED is repeating the Japan experiment and the 3 lost decades in Japan (1989-2019) are set to repeat across the globe. SPX 1800 and lower in a year and we stay there till 2030, scary? The markets are very close to an epic meltdown and the SPX is headed way lower.

The markets are overvalued, overbought and out of touch with economic realities. Long term, the epic meltdown is set to continue resulting in a 5 year plus bear market with lot lower levels that may be as low as 800 on the S and P. QE forever from the FED is about to trigger the deflationary collapse of the century as we make a major top in global equity markets. The market is looking like the short of a lifetime with topping action in the transports, other global indices, and commodities. High valuations continue.

The recent global virus epidemic (black swan) has dented global GDP significantly and will usher in a depression much faster than most think. The trend is about to change from bullish to bearish and the markets are about to get smashed by a rebounding dollar. Looking for significant underperformance in the Nifty going forward on rapidly deteriorating macros. A 5-year deflationary wave has started in key asset classes like the Euro, stocks, and commodities amidst several bearish divergences and overstretched valuations.

We are entering a multi-year great depression. The markets are still trading well over 3 standard deviations above their long-term averages from which corrections usually result. Tail risk has been very high of late, as interest rates are plunging yet again leading into a major recession. The critical levels to watch for the week are 4450 (up) and 4425 (down) on the S & P 500 and 16300 (up) and 16150 (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 about to get torched soon (despite the bullish consensus emerging). You can check out last week’s report for a comparison. Love your thoughts and feedback.