Market Signals For The U.S. Stock Market And Indian Stock Market - Monday, March 20

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.

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&P 500 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.commultpl.com, NSE

   

**Neutral

Changes less than 0.5% are considered neutral

   

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.


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Disclaimer: The views expressed here are my own and must not be taken as advice to buy or sell securities.

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