The Carry Trade Warning Signal

I thought I would spend this week eating my words from last week as the ASX 200 shot up 400 points. But I am going to stick to my guns and say that a correction is in the offing.

The set up in the S&P 500 is compelling on the daily chart. I will even stick my neck out and say I wouldn’t be surprised if I woke up tomorrow morning (Saturday) and saw the S&P 500 down 200-300 points.

But today’s Closing Bell isn’t all doom and gloom.

When markets start selling off, it pays to keep an eye on the sectors that outperform.

That can give you a good hint about which sectors will run the hardest on the bounce.

As one of the most crowded trades of the last two decades implodes in software stocks, steady gains in critical minerals and industrial metals start to look pretty appealing.

My view is that China has deliberately crashed the prices of future facing metals over the past few years to scare off Western competition.

But you can only hold a beach ball down in the water for so long.

Once you let go it will spring back into your face at a rate of knots.

As demand for lithium shoots higher with grid scale batteries joining EV’s in competition for supply, I think the future looks bright.

Adding to positions on weakness is the smart thing to do.

Lachy, our resident microcap expert, has been hunting for a bunch of stocks that are exposed to the key sectors that are running while other sectors implode.

He’s zeroing in on stocks with exposure to key chokepoints in the global AI-resources arms race.

So make sure you have a read of his ‘Pax Silica’ report released next Tuesday.

But returning to the downside risk in other sectors, I have noticed this week that the USDJPY nosedived sharply.

That is a big hint that carry trade unwinds may be hitting the market and could increase over the next few weeks.

I go into detail about the set up in the USDJPY in the video below.

I also review the continuing bloodbath in the software sector.

This is turning into a ‘get me out at any price’ panic.

Indiscriminate selling will throw out the babies with the bathwater, so the job will be figuring out which stocks aren’t at risk of massive disruption.

Getting it right will be the best money making opportunity this year.

We also touch on Bitcoin which has broken beneath major support levels and finish up showing you how strong critical metals remain.

So get stuck into this week’s instalment of Closing Bell and be sure to give us a like and leave us a comment on the YouTube version.