We’ve been warning that stocks were susceptible to a sharp drop for several weeks now. Stocks are notoriously “dumb” when it comes to major market moves.
Consider that stocks, even at current lofty levels, have a global market capitalization of slightly over $60 trillion.
In contrast, the global bond market is well over $100 trillion.
And the global currency market trades OVER $5.3 trillion per day.
As a result, stocks ALWAYS “get it” last.
With that in mind, the S&P 500 was rejected at the upper trendline of a megaphone pattern.
This move is predicated on the US Dollar rally that began in July 2014.
Globally there are at least $9 TRILLION US Dollar shorts in the form of carry trades. When a carry trade unwinds, the damage is often catastrophic.
The first stage has completed and we’re due for the next leg up here. Check out the absolute bloodbath for the US Dollar/ Brazilian Real pair (when the Dollar strengthens against the Real, the chart moves up).
We’ve just completed a consolidation phase. The next move should be an absolute doozy.
Here’s the US Dollar/ Australian Dollar pair (again, when the Dollar strengthens against the Aussie Dollar, the chart moves up).
That’s a 17% move in less than SIX months.
You only get these kinds of moves when the STUFF IS HITTING THE FAN. By way of example, imagine the impact these moves would have on ANY project or investment that was borrowing US Dollars in Australia or Brazil.
As we keep emphasizing, stocks are ALWAYS the last to “GET IT.”
The currency markets (which trade $5 trillion per day) realizes that something MASSIVE is underway. And it’s only just beginning. Globally the US Dollar carry trade is over $9 trillion in size. As the US Dollar rally increases, this whole mess could implode.
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Best Regards
Phoenix Capital Research