The S&P 500 fell and the Nifty rallied last week. Indicators are bearish for the coming week. The moment of reckoning is upon us. The recent bullish technicals observed are about to be trumped by bearish fundamentals. The market is yet to price in one of the worst earnings decline periods in stock market history. With extremely high valuations, an October/November crash is on the menu following the recent bounce from the 50dma. Low volatility suggests complacency and more downside ahead.

We rallied 46% right after the great depressions (1930’s) first collapse and we have rallied over 50% in our most recent rally of the lows in a similar 6 month period. After extreme euphoria for the indices, a highly probable selloff to the 3000 area is emerging on the S&P, and 10000 should arrive on the Nifty in short order. The Fed is repeating the Japan experiment and the lost 3 decades in Japan (1989-2019) is set to repeat across the globe. SPX 1500 and lower by year-end and we stay there till 2030, scary? The markets are very close to an epic meltdown and the SPX is headed way lower.

The markets are overvalued, overbought and out of touch with economic realities. Long term, the epic meltdown is set to continue resulting in a 5 year plus bear market with lot lower levels may be as low as 800 on the S&P. QE forever from the Fed is about to trigger the deflationary collapse of the century and we have made a major top in global equity markets. The market is looking like the short of a lifetime with non-conformations from the transports, other global indices, and commodities. High valuations continue. The breakdown in Crude is a precursor to yet another massive drop in the S&P 500.

The recent global virus epidemic (black swan) is likely to dent global GDP significantly and usher in depression much faster than most think. The trend has changed from bullish to bearish and the markets are getting smashed by a strong dollar. Looking for significant underperformance in the Nifty going forward on rapidly deteriorating macros. A 5-year deflationary wave has started in key asset classes like the Euro, stocks, and commodities amidst several bearish divergences and overstretched valuations. 

We are entering a multi-year great depression. The markets are still trading well over 3 standard deviations above their long term averages from which corrections usually result. Tail risk has been very high of late as the yield curve inverts into a recession. The critical levels to watch for the week are 3475 (up) and 3455 (down) on the S&P 500 and 12000 (up) and 11850 (down) on the Nifty. A significant breach of the above levels could trigger the next big move in the above markets. You can check out last week’s report for a comparison. Love your thoughts and feedback.