Market Signals For The U.S. Stock Market And Indian Stock Market - Monday, May 16

The S&P 500 and the Nifty fell last week. Indicators are bearish for the week. Deflation is in the air despite the recent inflationary spike and the Chinese Yuan is telegraphing just that. Feels like a 2000-style recession trade has begun, with the start of a decline in risk assets across the board. (My views don’t matter, kindly pay attention to the levels). The S&P 500 closed below the 200 DMA recently, after spending a very long time above it, and the 200 DMA has started to decline. Monthly MACDs on most global markets have gone negative after a long time. This spells trouble ahead and opens up significant downside risk ahead. We could continue the selloff in the markets this week, with a likely short-term bottom near the 3800 mark on the S & P in the second half of the week.

We have got bounces without capitulation. This suggests the lows may not be in and the regime is changing from but the dip to sell the rip. Risky assets are breaking to the downside across the board. Earnings revisions have been average, but any significant upward revisions appear unlikely. Typical late-cycle Fed put stuff has led to a taper tantrum following the recent taper announcement from the Fed and a likely top. Tail risk has skyrocketed recently. The market is about to begin an epic correction. Deflationary busts often begin after major inflationary scares. 

The transports led the most recent rebound and are starting to lead the next decline, The Dollar, market breadth, and bond yields are continuing to flash major warning signs. The epic correction signal is alive and well with retail, hedge funds, and speculators all in, despite the recent melt-up, suggesting a major top may be 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. Extremely low volatility suggests complacency and downside ahead.

We rallied 46% right after the great depressions (1930’s) 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 3700 area is emerging on the S&P 500, and 15000 should arrive on the Nifty in the next few weeks. The Fed is repeating the Japan experiment and the 3 lost decades in Japan (1989-2019) are set to repeat across the globe.

The trend is about to change from bullish to bearish and the markets are about to get a reality check and get smashed by a strong dollar. Looking for significant underperformance in the Nifty going forward on rapidly deteriorating macros.

Yield curves are about to invert yet again reflecting a major upcoming recession. The critical levels to watch for the week are 4035 (up) and 4010 (down) on the S&P 500 and 15850 (up) and 15700 (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. 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.