Market Signals for the US stock market S and P 500 Index and Indian Stock Market Nifty Index for the Week beginning January 23

 

Asset Class	Weekly Level / Change	Implication for S & P 500		Implication for Nifty*
S & P 500	3973, -0.66%	Bearish	Bearish
Nifty	18028, 0.40%	Neutral **	Neutral
China Shanghai Index	3265, 2.18%	Bullish	Bullish
Gold	1928, 0.41%	Neutral	Neutral
WTIC Crude	81.96, 2.73%	Bullish	Bullish
Copper	4.28, 1.74%	Bullish	Bullish
CRB Index	279, 0.92%	Bullish	Bullish
Baltic Dry Index	763, -19.34%	Bearish	Bearish
Euro	1.0856, 0.26%	Neutral	Neutral
Dollar/Yen	129.59, 1.34%	Bullish	Bullish
Dow Transports	14356, -0.06%	Neutral	Neutral
Corporate Bonds (ETF)	110.55, 0.07%	Neutral	Neutral
High Yield Bonds (ETF)	93.39, -0.61%	Bearish	Bearish
US 10-year Bond Yield	3.48%, -0.46%	Neutral	Neutral
NYSE Summation Index	616, 60%	Bullish	Neutral
US Vix	19.85, 8.17%	Bearish	Bearish
Skew	120	Neutral	Neutral
CNN Fear & Greed Index	Greed	Bearish	Bearish
20 DMA, S & P 500	3889, Above	Bullish	Neutral
50 DMA, S & P 500	3929, Above	Bullish	Neutral
200 DMA, S & P 500	3969, Above	Bullish	Neutral
20 DMA, Nifty	18043, Below	Neutral	Bearish
50 DMA, Nifty	18284, Below	Neutral	Bearish
200 DMA, Nifty	17288, Above	Neutral	Bullish
S & P 500 P/E	20.66	Bearish	Neutral
Nifty P/E	21.46	Neutral	Bearish
India Vix	13.79, -4.65%	Neutral	Bullish
Dollar/Rupee	80.99, -0.36%	Neutral	Neutral
Overall	S & P 500	Nifty
Bullish Indications	9	7
Bearish Indications	6	8
Outlook	Bullish	Bearish
Observation	The S and P fell and the Nifty was up last week. Indicators are mixed for the week. The markets are back at resistance. Watch those stops.
On the Horizon	US – 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 fell and the Nifty rallied last week. Indicators are mixed for the week. The recent bounce is encountering resistance near the 200 DMA close to 4000 and downside is likely as we transition from an inflationary regime to a deflationary collapse. The January effect may terminate abruptly this time around. 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 fall, and high beta outperformed. Most emerging markets were up following a fall in interest rates. Transports were unchanged. The Baltic dry index continued to crater. The dollar was unchanged. Commodities rallied. Valuations are very expensive, market breadth rebounded, and the sentiment is improving. No fear yet though, as complacency reigns supreme. We could see any rebound to the 200 DMA near 4000 being sold into.

The ongoing 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 near the 200 DMA and is encountering resistance near 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 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 3985 (up) and 3960 (down) on the S & P 500 and 18100 (up) and 17950 (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.