Deflation Is Here

I’ve been warning that the markets were on the verge of another round of Deflation. By the looks of things, it’s here with the US Dollar breaking out of its massive wedge pattern.

The ultimate target for this pattern is the mid-80s. So consider this latest breakout the first leg up of a much larger move that will affect all other asset classes in a big way.

In order for a move of that caliber to occur in the US Dollar, we’ll need to see a full-scale crisis hit the markets (the last two US Dollar rallies occurred during the 2008 collapse and the 2010 Euro Crisis). So expect greater downside risk in stocks in the near future.

On that note, the S&P 500 has broken out of its bearish flag formation to the downside. The ultimate target for this pattern is at 1,000: 13% DOWN from here. Considering that we’ve already wiped out a year’s worth of gains in one month, this should be a MAJOR warning that we’re not done yet.