The S&P 500 was unchanged and the Nifty fell last week. Indicators are bearish for the week. The recent bounce has topped near the 200 DMA close to 4100 and the decisive downside has resumed as we transition from an inflationary regime to a deflationary collapse. We had 2 months of upside in October and November, and that’s all she wrote in a bear market. Santa looks to be stuck in the chimney this time around as the dominant trend reasserts itself. The market is tracking closely 1973/2008 moves down in the S&P 500, implying a panic low right ahead in the upcoming months (My views don’t matter, kindly pay attention to the levels). A dollar rebound is a likely catalyst.

The past week saw relative calm in most global equity markets, emerging markets underperformed with a rise in interest rates. Transports fell. The Baltic dry index also fell. The dollar fell slightly. Commodities rebounded. Valuations are very expensive, market breadth is falling, and the sentiment is turning negative. No fear yet though, as complacency reigns characterized by low volatility. We may get an oversold bounce this week after which more downside is likely.

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. It feels like a 2008-style recession trade has begun, with a potential decline in risk assets across the board.

The S&P 500 is failing 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 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&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. Looking for significant underperformance in the Nifty going forward on rapidly deteriorating macros. Yield curves have inverted significantly reflecting a major upcoming recession. 

The critical levels to watch for the week are 3855 (up) and 3835 (down) on the S&P 500 and 17900 (up) and 17700 (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. You can check out last week’s report for a comparison. Love your thoughts and feedback.

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