'Investors Are Panicking' In Huge Sell-Off; What's Next For Stocks, Gold, Bitcoin? | Chris Vermeulen

Key Concepts

• Market Correction: A decline of 10-20% in equity markets.
• Panic Selling Indicator: A technical indicator that measures extreme selling pressure, suggesting a potential market low.
• FOMO (Fear Of Missing Out) Indicator: A technical indicator that measures extreme buying pressure, suggesting a potential market top.
• Gap Fill: When a market price moves to fill a previous price gap on a chart.
• Asset Revesting: A trading strategy focused on identifying and riding major market trends (waves) while protecting capital.
• Megaphone Chart Pattern: A chart pattern characterized by higher highs and lower lows, indicating increased volatility and unpredictability.
• Seasonality: Predictable patterns in market behavior that occur at certain times of the year.
• Risk-On/Risk-Off Assets: Assets that tend to perform well during periods of economic expansion (risk-on) versus those that perform well during economic downturns (risk-off).

Market Analysis and Current Sentiment

The discussion on November 4th highlights a significant down day in the markets, with the S&P 500 down 1%, the NASDAQ down 1.6%, gold down 1%, and Bitcoin down nearly 6% intraday. Treasury yields also saw a decline. This broad market sell-off is attributed to a combination of factors, including weak October job openings data (falling to the lowest level in over 4.5 years, with the job postings index at 101.9 as of October 24th, the lowest since February 2021) and warnings from major banks like Goldman Sachs and Morgan Stanley about a potential 10-20% market drawdown in the next 12-24 months.

Despite these negative indicators, the speaker, Christopher Muen, Chief Market Strategist at TheTechnicalTraders.com, argues that the current pullback is a normal market correction, not a major financial calamity. He points to technical indicators, such as a "panic selling indicator" on the New York Stock Exchange, which shows an imbalance of sellers to buyers (three sellers for every one buyer). This extreme selling pressure, while indicative of investor panic, often signals a short-term market low. The presence of "lime green bars" on charts, which typically represent oversold conditions, further supports the idea of a controlled pullback.

Technical Analysis and Market Indicators

Muen emphasizes the importance of technical analysis, particularly the concept of "gaps" on price charts. He explains that markets tend to fill these gaps, meaning prices often move back to previous levels where a gap occurred. The current market action is seen as a normal process of filling a gap and testing a breakout level.

The "panic selling indicator" is defined by the ratio of New York Stock Exchange volume (up volume divided by down volume). When this indicator spikes, it suggests that the general public is reaching a tipping point and wants to exit their trades, believing everything is falling apart. Conversely, a "FOMO indicator" signals when investors are aggressively buying without regard for price, indicating short-term overbought conditions. Muen uses these indicators to identify short-term extremes in market sentiment and to inform a "buy the dip" mentality when others are panicking.

Sector Performance and Tech Earnings

The S&P 500 heat map reveals a significant sell-off in big tech, led by companies like Palantir and Oracle, which missed earnings expectations. These tech companies, due to their large weighting in the index, are dragging down the entire S&P 500. However, consumer defensives and healthcare sectors are performing well. Muen suggests that expectations for tech earnings are becoming increasingly high, and at some point, these expectations will be unmet, leading to significant sell-offs. He believes an inflection point for tech may be approaching.

Gold and Precious Metals Outlook

Muen expresses a bullish outlook for gold and silver, anticipating they will benefit the most over the next month or two. He notes that seasonality typically sees the stock market struggle from early to mid-November, which aligns with the current market behavior. Gold, while also experiencing pressure, is expected to see a tailwind into the holiday season and year-end rally.

He draws a comparison between the current market situation and 2007, where the stock market was making all-time highs while gold was also pushing upwards. After a period of struggle for stocks, gold began to pull back, mirroring current price action. Muen observes that money has been moving into gold miners, silver, and platinum, indicating a "crowded play" that has led to an initial pullback. However, he predicts that gold will shoot dramatically higher, potentially reaching $5100-$5200, as money moves out of stocks and into precious metals.

Muen also addresses the relationship between gold miners and gold. While they sometimes lead, other times they decouple. He notes that gold miners are more susceptible to stock market downturns due to their lower liquidity and smaller market cap. He believes that the current panic selling in gold miners reflects broader market fear, while gold and silver are holding up better as they are not directly tied to the stock market's "falling tide." He sees the current selling in gold as an "emotional pivot low" and expects a bottom to form soon.

Bitcoin Analysis

Bitcoin is also experiencing a significant sell-off, down 6% intraday and trading around $100,000, its lowest point in months. Muen explains that Bitcoin has become increasingly correlated with the stock market since its integration into financial markets as a future. He describes Bitcoin's daily chart pattern as a "megaphone," a broadening formation with higher highs and lower lows, indicating increased volatility and unpredictability. He advises against trading within such patterns due to the high risk of failure and potential for significant losses.

Muen believes Bitcoin has lost its "shine" and is underperforming the NASDAQ year-to-date. He suggests that investors are moving away from cryptocurrencies towards AI stocks and precious metals, which are currently trending. He anticipates Bitcoin will continue to "flounder and struggle" and that the market may attempt to break the $98,000-$99,000 level to shake out investors.

Asset Revesting Strategy and Risk Management

Muen's core investment philosophy is "asset revesting," which he likens to navigating the ocean. In a bull market (rising tide), it's easier to find profitable trades. In a bear market (falling tide), caution is paramount. His strategy involves identifying and riding major market trends or "waves" (5-12 per year) in stocks, bonds, and currencies. He emphasizes protecting capital by exiting trades when a trend weakens or reverses.

He acknowledges being perceived as "always bearish" due to his risk-focused approach and his past experiences with bankruptcy and blown trading accounts. He stresses the importance of avoiding prolonged periods of no returns (time tax) and significant drawdowns (capital tax). Muen advocates for paying taxes on gains, as it signifies profitability, rather than holding assets through crashes.

His strategy involves identifying clear entry and exit points, often moving to cash and earning interest while waiting for new opportunities. He typically holds only one or two ETF trades at a time and emphasizes an end-of-day strategy to avoid the noise and volatility of active trading. He believes this approach allows investors to avoid market crashes and corrections while still participating in upward trends.

Addressing Criticisms and Investor Psychology

Muen addresses criticisms regarding his perceived bearishness and seemingly contradictory positions (e.g., being bearish overall but recommending buying dips). He explains that his "bearish" outlook is a constant assessment of potential risks and chaos, akin to defensive driving. He shares analysis publicly but emphasizes that actual trading decisions are for his subscribers.

He highlights common investor mistakes, such as chasing money, being emotional, over-allocating to trades, and holding onto losing positions. His strategy aims to help investors avoid these pitfalls by providing clear signals to enter and exit the market. He believes that by focusing on riding trends and protecting capital, investors can achieve consistent returns without excessive trading.

Positioning and Future Outlook

As of the interview, Muen's firm had re-entered the equity market, going long on equities after hitting a target on the QQQ. They are observing if the equity market will continue its upward trend. He views the current "shakeout day" as a positive sign, expecting a market bounce and rally in the following sessions. He projects potential upside for the QQQ based on Fibonacci measured moves.

Muen believes that while the stock market may face a rough ride, gold and silver are poised for significant gains. He anticipates a bottom for precious metals within the week and a strong rally thereafter. He remains cautious about Bitcoin, expecting it to continue struggling due to its unpredictable chart patterns and loss of investor interest.