Rumblings of a “Risk-Off” Market
Things are becoming very stretched now.
Financial markets can act a bit like rubber bands – they will move to great extremes before suddenly “snapping back” in a violent reversal.
I see this kind of setup occurring in multiple asset classes right now.
As I noted last week, the US dollar is breaking down in a big way. Generally speaking, a weak $USD is good for risk assets like stocks.
However, this time around, the $USD is declining much too fast. The pace of the decline is becoming dangerous.
In situations like this, it would not be surprising to see the US dollar SNAP BACK rapidly. And that would trigger a significant risk-off move in the markets.
We get the same message in reverse for gold.
Gold typically moves higher against a weak $USD. And gold has just gone positively vertical, hitting a new all-time high.
Again, this whole situation looks very stretched. These kinds of situations can result in sharp risk-off moves.
And when you consider that stocks were already struggling at current levels, you have the makings of a red week.
These are the three charts I’m watching today. We might not get that reversal today, but I wouldn’t be surprised to see it hit later this week.
Editor, Money & Crisis