Commodities are plunging as growth expectations fall rapidly and the US dollar continues to soar.
Large resource stocks that seemed like a great place to hide in an inflationary environment are dropping like flies.
The financials have also been feeling a lot of heat lately, so the major pillars underpinning the ASX 200 are crumbling before our eyes.
Interest rate expectations are flying all over the place because no one really knows what’s going to happen over the next few years.
Does the Fed raise rates too quickly and cause an economic crash? Does inflation remain stubbornly high, and does the Fed get cold feet and stop chasing it once growth comes off the boil?
Now that the US dollar has broken out of the range it has been stuck in for seven years, it could continue surprising to the upside as money flees the rest of the world and Europe in particular.
Gold is teetering on the edge of major support at US$1,675, and if it can’t hold, a panicked sell-off in gold could be on the cards.
Nickel fell 8% on Thursday, and copper and iron ore look very sick indeed.
There is still the chance we could see a short squeeze developing at some point, but the way things are moving, it is increasing the odds that we could see another wave lower in equities.
I show you the level above and below the market where the odds increase that either a short squeeze or a free fall is on the cards.
Where the markets are trading right now is basically a no man’s land where the odds of prices breaking one way or the other in the short term are evenly matched.
If the low of the correction in the US and Australia can’t hold, I am moving back to a fully bearish stance and think a serious capitulation is possible.
But it’s from moments like these that a crazy rally can ensue. If the market has everything, including the kitchen sink, thrown at it and manages to hold in there, then once the pressure is taken off, prices can rebound quickly.
My gut feeling is that the bearish case is more likely, but I will withhold judgement until we move out of no man’s land.
Check out my latest analysis of world markets in the ‘Closing Bell’ video above.
Regards,
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Murray Dawes,
Editor, Money Weekend
