Market Signals for the US stock market S and P 500 Index and Indian Stock Market Nifty Index for the Week beginning October 24

Indicator	Weekly Level / Change	Implication for S & P 500	Implication for Nifty*
S & P 500	3753, 4.74%	Bullish	Bullish
Nifty	17576, 2.27%	Neutral **	Bullish
China Shanghai Index	3038, - 1.08%	Bearish	Bearish
Gold	1663, 0.82%	Bullish	Bullish
WTIC Crude	84.00, - 0.77%	Bearish	Bearish
Copper	3.48, 1.62%	Bullish	Bullish
Baltic Dry Index	1819, - 1.03%	Bearish	Bearish
Euro	0.9862, 1.47%	Bullish	Bullish
Dollar/Yen	147.65, - 0.73%	Bearish	Bearish
Dow Transports	12693, 1.51%	Bullish	Bullish
Corporate Bonds (ETF)	99.48, - 0.90%	Bearish	Bearish
High Yield Bonds (ETF)	88.77, 1.17%	Bullish	Bullish
US 10-year Bond Yield	4.22%, 5.42%	Bearish	Bearish
NYSE Summation Index	-1063, 7%	Bullish	Neutral
US Vix	29.69, - 7.28%	Bullish	Bullish
Skew	116	Neutral	Neutral
CNN Fear & Greed Index	Neutral	Neutral	Neutral
20 DMA, S & P 500	3671, Above	Bullish	Neutral
50 DMA, S & P 500	3887, Below	Bearish	Neutral
200 DMA, S & P 500	4135, Below	Bearish	Neutral
20 DMA, Nifty	17197, Above	Neutral	Bullish
50 DMA, Nifty	17500, Above	Neutral	Bullish
200 DMA, Nifty	16995, Above	Neutral	Bullish
S & P 500 P/E	19.52	Bearish	Neutral
Nifty P/E	21.06	Neutral	Bearish
India Vix	17.28, - 5.35%	Neutral	Bullish
Dollar/Rupee	82.54, 0.24%	Neutral	Neutral
Overall	S & P 500	Nifty
Bullish Indications	9	12
Bearish Indications	9	7
Outlook	Neutral	Bullish
Observation	The S and P and the Nifty rallied last week. Indicators are marginally bullish for the week. The markets are making new lows. Watch those stops.
On the Horizon	US – GDP, Eurozone – ECB rate decision, German CPI, German GDP, China - 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 mildly bullish for the week. 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.  Finally, we got a sustainable bounce that could test the 50 DMA near 3900 on the S and P. The October swoon is here tracking closely the 2008 move down in the S and P, implying a panic low right ahead in the upcoming months.

The past week saw a rebound in global markets, despite a continued rise in interest rates. Transports held up last week after recently making new lows. The Baltic dry index continued to fall. The dollar fell. Commodities bounced back. Valuations are expensive, market breadth is weakening, and the sentiment is neutral.

The ongoing 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, bonds, and commodities are telegraphing just that. Feels like a 2008-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.

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 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. 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 3765 (up) and 3740 (down) on the S & P 500 and 17650 (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 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.