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

 

Asset Class	Weekly Level / Change	Implication for S & P 500		Implication for Nifty*
S & P 500	3917, 1.43%	Bullish	Bullish
Nifty	17100, -1.80%	Neutral **	Bearish
China Shanghai Index	3251, 0.63%	Bullish	Bullish
Gold	1994, 0.81%	Bullish	Bullish
WTIC Crude	66.93, -12.72%	Bearish	Bearish
Copper	3.90, -3.36%	Bearish	Bearish
CRB Index	255, -3.90%	Bearish	Bearish
Baltic Dry Index	1535, 7.79%	Bullish	Bullish
Euro	1.0668, 0.23%	Neutral	Neutral
Dollar/Yen	131.80, -2.36%	Bearish	Bearish
Dow Transports	13774, -3.07%	Bearish	Bearish
Corporate Bonds (ETF)	107.99, 1.10%	Bullish	Bullish
High Yield Bonds (ETF)	89.91, -0.13%	Neutral	Neutral
US 10-year Bond Yield	3.44%, -8.38%	Bullish	Bullish
NYSE Summation Index	-255, -304%	Bearish	Neutral
US Vix	25.51, 2.86%	Bearish	Bearish
Skew	131	Neutral	Neutral
CNN Fear & Greed Index	Extreme Fear	Bullish	Bullish
20 DMA, S & P 500	3967, Below	Bearish	Neutral
50 DMA, S & P 500	4008, Below	Bearish	Neutral
200 DMA, S & P 500	3937, Below	Bearish	Neutral
20 DMA, Nifty	17447, Below	Neutral	Bearish
50 DMA, Nifty	17715, Below	Neutral	Bearish
200 DMA, Nifty	17446, Below	Neutral	Bearish
S & P 500 P/E	20.94	Bearish	Neutral
Nifty P/E	20.15	Neutral	Bearish
India Vix	14.77, 10.10%	Neutral	Bearish
Dollar/Rupee	82.53, 0.70%	Neutral	Bearish
Overall	S & P 500	Nifty
Bullish Indications	7	7
Bearish Indications	11	13
Outlook	Bearish	Bearish
Observation	The S and P rallied and the Nifty fell last week. Indicators are bearish for the week. The markets are failing at resistance. Watch those stops.
On the Horizon	UK – CPI, BOE rate decision, US – FOMC rate decision, 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&P 500 rallied and the Nifty fell last week. Indicators are bearish for the week. We have lost all bullish momentum and last week’s pullback stalled below the 50 and 200 DMA’s, as we transition from an inflationary regime to a deflationary collapse. The Nifty is failing at resistance near its 50WMA near 17340. The current market is tracking closely the 1973 move 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 being the likely catalyst.

The past week saw US equity markets rise. Most emerging markets fell, as a flight to quality sent interest rates sharply lower. Transports diverged and fell. The Baltic dry index continued to rebound. The dollar was unchanged. Commodities fell, with gold catching a flight to quality bid. Valuations are quite expensive, market breadth declined, and the sentiment is now very bearish. Fear has started to rise, as possible contagion risk from bank failures rises. The sudden steepening of the yield curve, with rates falling, is a precursor to the next recession, and most risky assets (unlike last week) will underperform.

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 has lost its 200 DMA, and its 200 DMA is declining. Monthly MACDs on most global markets are still negative. This spells trouble and opens 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 countertrend 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&P 500, 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 3930 (up) and 3905 (down) on the S&P 500 and 17200 (up) and 17000 (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 (though technically overbought in the short term) 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.