The S&P 500 and the Nifty fell last week. Indicators are bearish for the week. We have been selling off from resistance near the 200 DMA on the S&P and the sell-off is likely to continue with bounces being sold into.  The October swoon is here tracking closely the 2008 move down in the S&P 500, implying a panic low right ahead.

The past week saw a fall in global markets, following a continued rise in interest rates post the US CPI report. Transports held up last week after recently making new lows. The Baltic dry index continued to fall. The dollar gained and is close to its recent highs. Commodities fell. Valuations are expensive, market breadth is weakening, and the sentiment is strongly negative.

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, government bonds, and commodities are telegraphing just that. Feels like a 2008-style recession trade has begun, with a decline in risk assets across the board. (My views don’t matter, kindly pay attention to the levels).

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 likely soon.

The Fed is aggressively tightening into a recession. Tail risk while moderating is still high.  Deflationary busts often begin after major inflationary scares. The market has corrected significantly and more is left on the downside. The Dollar, commodities, transports, and, bond yields are continuing to flash major warning signs.

The epic correction signal occurred with retail, hedge funds, and speculators all in, in the recent melt-up 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 and P, 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 are inverting yet again reflecting a major upcoming recession. 

The critical levels to watch for the week are 3600 (up) and 3570 (down) on the S & P 500 and 17300 (up) and 17100 (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 despite the recent selloff. You can check out last week’s report for a comparison. Love your thoughts and feedback.

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