At this stage we are set for a stock market crash in the US for the fourth quarter of 2015. As per our previous warnings our Business Cycle Analysis suggests M2 NSA quarterly average money supply growth is collapsing, undercutting the existing capital-consumption structure of the US economy. M2 NSA has fallen to 1.5% from its March 2015 peak of 8.25%. Furthermore we now have a series of lower highs and lower lows occurring since 2011 implying a long term weakening of the capital-consumption structure.
US Stock Markets
Translating that into stock market prices we at Emerging Events suggest the potential for one last high on the DJIA and S&P500 is still present. The DJIA has the potential to rally to 18351-18500 (S&P 2134-2150). A fall below DJIA 17465 (S&P 2044) would see this invalidated and a confirmation that the top is already in. Substantial falls are directly ahead. Our short term downside target once the top has been confirmed remains below DJIA 15855 (S&P 2061).
Sentiment in gold has reached extremely pessimistic levels. Whilst the potential for marginally new lows can occur the next major move will be a move to above US$1307 before the resumption of the long term downtrend from its 2011 highs. The move above US$1307 should be a very fast move.
US Interest Rates
Long interest rates appear to be completing a consolidation phase – basing before moving substantially higher. Thus the trap will be closing to trigger “The Great Sovereign Debt Crisis of the 21st Century”. In the short term however there is potential for interest rates to continue to base prior to the commencement of this upward move on rates. Expect 30 Year US Treasuries to work into the 2.75-2.85% before moving higher with the potential to spend more time basing. When the up move gets underway we see the 4.5-5.0% for 30 year Treasuries as the next interim target. Expect global interest rates to follow accordingly.
The US$ has strengthened since our last financial markets update. This is in keeping with our view that money will continue to be sucked from the periphery to the centre. We anticipate the US$ to continue to strengthen sucking money from the third world, Asia and Europe with frequent rallies along the way. Expect the Euro to test its recent low around 1.04 and potentially 1.00. The $Yen will move above 125 – 130. Aus$ to test 70 cents.
Australian Stock Market
The nature of the stock market has since the 2009 lows has been a corrective recovery to date. It has failed to make new highs whilst other world stock markets have done so. This reflects the major restructuring needed in the Australian economy. We anticipate the Australian stock market to continue its down trend and look for further acceleration downwards as the rest of the world starts to catch up later this year. Significant falls lie ahead and initially we are looking for a test of the 2009 lows.
Oil & Gas
We see oil & gas continuing to consolidate its falls of early 2015. At the moment they are probing towards the lows. We see those lows holding up and eventually oil prices moving to test the US$67-68 per barrel level for crude before a resumption of the long term downtrend and our long term target of US$12 per bbl.