Wall Street Collapse: Need Help? We map it out

We have warned our readers, but if you are caught invested in a bull market that is over, then it is time to invest in this just beginning bear market.

Happy Days.

In case you didn't see it stocks just had a sharp collapse day.

It may not be easy to immediately spot it there over on the right, but that is a NEGATIVE New York Empire Manufacturing Index outcome. An immediate collapse to -0.7%. As we have been saying, the US economy is in trouble in real time right now and the data is coming to show it. As is the case in Australia as well.

In the USA we have been seeing the terrible reality of a slowing manufacturing sector while the stock market kept going up alongside super high inflation. This is the most unsustainable state of affairs any economy can face and screams an over-cooked equity market.

Many months ago I suggested the very wealthy take all their chips off the table, the wealthy 50%, and for the soon to be wealthy to become very aggressive in their trading and hunt a significant market down-turn. No change, except to say this looks like one of those very high probability start of collapse moments.

We were the first to forecast three rate hikes starting this first quarter and we were the first to upgrade that forecast to there being risk of 5-7 hikes this year. Which I again highlighted on ausbiz TV yesterday.

As the market belatedly catches up with economic reality and our forecasts on inflation and rate hikes, Wall Street is still mistaken in understanding why this is bad for stocks. It is not the rate hikes so much as it is the consumer loss of buying power and subsequent retreat.

USA: the economy is in trouble. Inflation is out of control and a wages-inflation spiral is already underway. Retail Sales and Consumer Sentiment continue to collapse.

All this, on top of extreme valuations in the equity market.

My forecast remains US500 4,050 and AUS200 6800.

US500 2 hourly chart

It is only early, but clear indications of a gathering momentum down-trend situation.

 

EURUSD 2 hourly chart

Euro falling, as our favoured 'buy the US dollar' scenario comes back into play.

 

US Capital Inflow

Remains elevated and as previously discussed has been one of the main drivers of stocks stretching to extreme valuations. I continue to characterise this as safe-haven flows from global investors rather than greed investing. Nevertheless, the domestic fund off-loading of stock holdings now appears to be over-whelming this still strong flow. Any substantial sell-off could quickly turn that tap of foreign investment off. Thereby exasperating the potential down-trend.

 

AUS200 2 hourly chart

Dropping to the lower recent range and highlighting everyone should be considering the bear trend scenario and how to deal with it. Declines are an immense opportunity if handled correctly.