Market Signals for the US stock market S and P 500 Index and Indian Stock Market Nifty Index for the Week beginning February 20

 

Asset Class	Weekly Level / Change	Implication for S & P 500		Implication for Nifty*
S & P 500	4079, -0.28%	Neutral	Neutral
Nifty	17944, 0.49%	Neutral **	Neutral
China Shanghai Index	3224, -1.12%	Bearish	Bearish
Gold	1852, -1.30%	Bearish	Bearish
WTIC Crude	76.55, -3.55%	Bearish	Bearish
Copper	4.13, 2.76%	Bullish	Bullish
CRB Index	268, -1.87%	Bearish	Bearish
Baltic Dry Index	538, -10.63%	Bearish	Bearish
Euro	1.0694, 0.18%	Neutral	Neutral
Dollar/Yen	134.15, 2.09%	Bullish	Bullish
Dow Transports	15136, 0.62%	Bullish	Bullish
Corporate Bonds (ETF)	107.04, -0.67%	Bearish	Bearish
High Yield Bonds (ETF)	91.38, -0.38%	Neutral	Neutral
US 10-year Bond Yield	3.82%, 2.02%	Bearish	Bearish
NYSE Summation Index	849, -14%	Bearish	Neutral
US Vix	20.02, -2.48%	Bullish	Bullish
Skew	123	Neutral	Neutral
CNN Fear & Greed Index	Greed	Bearish	Bearish
20 DMA, S & P 500	4094, Below	Bearish	Neutral
50 DMA, S & P 500	3978, Above	Bullish	Neutral
200 DMA, S & P 500	3943, Above	Bullish	Neutral
20 DMA, Nifty	17848, Above	Neutral	Bullish
50 DMA, Nifty	18034, Below	Neutral	Bearish
200 DMA, Nifty	17331, Above	Neutral	Bullish
S & P 500 P/E	21.80	Bearish	Neutral
Nifty P/E	21.15	Neutral	Bearish
India Vix	13.09, 2.67%	Neutral	Bearish
Dollar/Rupee	82.77, 0.31%	Neutral	Neutral
Overall	S & P 500	Nifty
Bullish Indications	6	6
Bearish Indications	11	11
Outlook	Bearish	Bearish
Observation	The S and P and the Nifty were unchanged last week. Indicators are bearish for the week. The markets are back at resistance. Watch those stops.
On the Horizon	Eurozone – German CPI, CPI, German GDP, US – GDP, China – PBoC 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 and P 500 and the Nifty were little changed last week. Indicators are bearish for the week. The recent bounce has taken out resistance near the 50 WMA close to 4020 and the upside is likely capped as we transition from an inflationary regime to a deflationary collapse. The Nifty is encountering resistance near its 20WMA near 17980. 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 mostly unchanged. Most emerging markets fell, as interest rates rose. Transports outperformed. The Baltic dry index continued to fall. The dollar was unchanged. Commodities fell. Valuations are very expensive, market breadth declined, and the sentiment is bullish and close to extremes. No fear yet though, as complacency reigns supreme.

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 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 finally above the 200 DMA, while this is a short-term positive, 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 4090 (up) and 4065 (down) on the S&P 500 and 18050 (up) and 17850 (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.