The S&P Nifty fell last week. Indicators are bearish for the week. Markets are topping. We are transitioning from an inflationary regime to a deflationary one. The sentiment is bearish, and risk-reward is poor at these levels as divergences develop. Carry trade liquidation may resume even as we enter a seasonally strong period. The Nifty has corrected from recent highs and will likely underperform going forward.The past week saw US equity markets fall. Most emerging markets fell as interest rates rose. Transports fell. The Baltic dry index fell. The dollar rose. Commodities fell. Valuations are expensive, market breadth fell, and the sentiment is bearish. Fear (S&P 500) rose.After this rally, a currency crisis should resume and push risky assets to new lows. Despite the recent inflationary spike, deflation is in the air, and bonds are telegraphing just that. It feels like a 2008-style recession trade has begun, with a potential for a decline in risk assets across the board. The current market is tracking closely the 2000 moves 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 from significant support is a likely catalyst.The S&P 500 is near all-time highs. We have bounced 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 as earnings growth peaks. The Fed has aggressively tightened into a recession. Deflationary busts often begin after major inflationary scares. After correcting significantly, the market has made new highs, and more is left on the downside. The Dollar, commodities, and bond yields are flashing significant warning signs.

Asset Class

Weekly Level / Change

Implication for S&P 500 

Implication for Nifty*

S&P 500 

5931, -1.99%

Bearish

Bearish

Nifty

23588, -4.77%

Neutral **

Bearish

China Shanghai Index

3368, -0.70%

Bearish

Bearish

Gold

2645, -1.15%

Bearish

Bearish

WTIC Crude

69.46, -2.57%

Bearish

Bearish

Copper

4.10, -2.29%

Bearish

Bearish

CRB Index

292, -0.60%

Bearish

Bearish

Baltic Dry Index

990, -5.80%

Bearish

Bearish

Euro

1.0429, -0.70%

Bearish

Bearish

Dollar/Yen

156.41, 1.80%

Bullish

Bullish

Dow Transports

15892, -4.90%

Bearish

Neutral

Corporate Bonds (ETF)

106.98, -1.60%

Bearish

Bearish

High Yield Bonds (ETF)

95.38, -1.09%

Bearish

Bearish

US 10-year Bond Yield

4.53%, 3.08%

Bearish

Bearish

NYSE Summation Index

-191, -187%

Bearish

Neutral

US Vix

18.36, 32.95%

Bearish

Neutral

S&P 500 500 Skew

161

Bearish

Neutral

CNN Fear & Greed Index

Fear

Bullish

Neutral

Nifty MMI Index

Fear

Neutral

Bullish

20 DMA, S&P 500 

6021, Below

Bearish

Neutral

50 DMA, S&P 500 

5927, Above

Bullish

Neutral

200 DMA, S&P 500 

5527, Above

Bullish

Neutral

20 DMA, Nifty

24363, Below

Neutral

Bearish

50 DMA, Nifty

24339, Below

Neutral

Bearish

200 DMA, Nifty

23819, Below

Neutral

Bearish

S&P 500 P/E

30.29

Bearish

Neutral

Nifty P/E

21.71

Neutral

Bearish

India Vix

15.07, 15.48%

Neutral

Bearish

Dollar/Rupee

84.95, 0.19%

Neutral

Neutral

Overall

S&P 500 

Nifty

Bullish Indications

5

2

Bearish Indications

16

17

Outlook

Bearish

Bearish

Observation

The S&P 500 and the Nifty fell last week. Indicators are bearish for the week.

Markets are topping. Watch those stops.

On the Horizon

UK – GDP

*Nifty

India’s Benchmark Stock Market Index

Raw Data

Data courtesy stockcharts.com, investing.com, multpl.com, nseindia.com, tickertape.in

**Neutral

Changes less than 0.5% are considered neutral

 Global yield curves have steepened after inverting significantly, reflecting a major economic slowdown. The recent steepening of the yield curve, within an inverted context, with rates falling, is a precursor to the next recession, and the riskiest assets will underperform going forward under such conditions. The critical levels to watch for the week are 5945 (up) and 5920 (down) on the S&P 500 and 23700 (up) and 23500 (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 again and likely be a sell on every rise. Gold increasingly looks like the asset class to own over the next decade. (Gold exploded almost eight times higher over the decade following the dot-com bust in 2000. Imagine what would happen when this AI bubble bursts? following the recent crypto bubble burst) You can check out last week’s reportlast week’s reportfor a comparison. Love your thoughts and feedback. Merry Christmas.More By This Author:Market Signals For The U.S. Stock Market And Indian Stock Market – Monday, July 1
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