The S&P 500 and the Nifty fell last week. Indicators are bearish for the week. We have lost all bullish momentum and are 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 20WMA near 18000. The 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 fall. Most emerging markets fell, as a flight to quality sent interest rates lower. Transports led the fall. 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 bearish. Fear has started to rise, as possible contagion risk from bank failures rises.

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.

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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 3875 (up) and 3850 (down) on the S&P 500 and 17500 (up) and 17300 (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.

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