The S&P 500 fell and the Nifty was little changed last week. Indicators are bearish for the week. We have failed at resistance near the 200 DMA on the S&P 500 and the sell-off is likely to continue with bounces being sold into.  The recent bounce has topped near the 200 DMA close to 4100 and decisive downside should resume as we transition from an inflationary regime to a deflationary collapse. The market is tracking closely the 2008 move 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).

The past week saw a fall in most global markets, despite rates being little changed. Transports fell. The Baltic dry index continued to crater. The dollar rebounded. Commodities fell across the board led by oil. Valuations are very expensive, market breadth is improving, and so has the sentiment. No fear yet though, as complacency reigns following a collapse in volatility.

The ongoing currency crisis should push risky assets to new lows across the board. Deflation is in the air despite the recent inflationary spike and the Chinese Yuan, Euro, and Yen are telegraphing just that. Feels like a 2008-style recession trade has begun, with a decline in risk assets across the board.

The S&P 500 is below the 200 DMA and recently failed at 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 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 are 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.

The epic correction signal occurred with retail, hedge funds, and speculators all in, in January, suggesting a major top is in. The moment of reckoning is here.  Technicals are tracking fundamentals and have recently turned bearish. 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 3975 (up) and 3955 (down) on the S&P 500 and 18400 (up) and 18250 (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 despite the recent selloff. You can check out last week’s report for a comparison. Love your thoughts and feedback.

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