Market Hasn’t Even Unravelled Yet: The Real Crash About To Drop | Chris Vermeulen

Key Concepts

• Market Rotation/Correction: A significant downturn or shift in market sentiment and asset prices.
• Risk-Off Sentiment: A market environment where investors move away from riskier assets towards safer ones.
• FOMO Indicator: A technical indicator designed to signal when investors are excessively piling into the market due to fear of missing out.
• Head and Shoulders Pattern: A bearish chart pattern indicating a potential reversal of an uptrend.
• Bull Flag: A bullish chart pattern indicating a continuation of an uptrend.
• Prediction Markets: Platforms where individuals can bet on the outcome of future events, often seen as indicators of collective sentiment.
• Technical Analysis: A trading discipline employed to evaluate investments and identify trading opportunities by analyzing statistical trends gathered from trading activity, such as the movement of a price or an asset.
• Intermarket Analysis: A method of analyzing markets by looking at the relationships between different asset classes and economic factors.
• Price Action: The movement of an asset's price over time, used as a primary tool in technical analysis.
• Time Cycles: The concept that market movements can be influenced by recurring time-based patterns.
• Sentiment Analysis: Gauging the overall mood or feeling of market participants.
• Contrarian Indicator: An indicator that suggests a market trend will reverse when the majority of investors are taking a particular stance.
• Value Investing: An investment strategy that involves buying securities that appear underpriced based on fundamental analysis.
• Capital Preservation: The strategy of protecting invested capital from loss.

Market Downturn and Risk-Off Sentiment

The discussion centers on a current market downturn, characterized by a "risk-off" sentiment that is no longer a future projection but a present reality. This is evidenced by significant pullbacks in major risk assets like Apple, Google, the S&P 500, and even gold, which is down 7% from its all-time highs. The speaker, Christopher Mullen, Chief Market Strategist at The Technical Traders.com, emphasizes that while a full-blown bear market hasn't been declared, a significant correction is underway.

Key Points:

• Market Shift: The market has moved to cash and the sidelines due to uncertainty and emotional volatility.
• Risk Assets Declining: Major tech stocks (Apple, Google, Amazon, Microsoft) and even gold have seen declines from their peaks.
• Correction vs. Bear Market: The current situation is described as a "correction" rather than a "bear market."
• Speculative Assets Hit Hardest: The graphic presented clearly shows that speculative plays, particularly in the crypto space (meme coins), are down the most, indicating a rapid flight of capital when nervousness sets in.
• Froth Removal: The current pullback is seen as the removal of "froth" from the market, with expectations of a much deeper correction to come.
• Nvidia and Tesla Volatility: Declines of 15-20% in stocks like Tesla and Nvidia are considered normal for these volatile assets, especially given the high degree of emotional buying.

S&P 500 Technical Analysis and Head and Shoulders Pattern

The conversation delves into the technical analysis of the S&P 500, highlighting its short-term downtrend and the current bounce as merely a movement within that trend.

Key Points:

• S&P 500 and NASDAQ Downtrend: Both indices are currently in a short-term downtrend.
• Bounce within a Downtrend: The current market activity is characterized as a bounce within an existing downtrend.
• FOMO Indicator: The "FOMO indicator" is discussed as a tool to identify extreme pivot highs and lows, showing periods of excessive buying followed by panic selling.
• Emotional Rollercoaster: The market is described as an "emotional roller coaster," with rapid shifts from extreme buying to panic selling within a single session.
• Head and Shoulders Pattern: A potential "head and shoulders" topping pattern is identified on the S&P 500 chart. A break below the neckline of this pattern could lead to a significant and precipitous fall.
• Downside Target: If the head and shoulders pattern breaks down, the S&P 500 could target a level around $614 per share, representing a 7-8% correction from current levels.
• Moving Averages: The 50-day and 20-day moving averages are sloping downwards, and the 5-day moving average is below the 50-day, indicating a potential end to the upward momentum.
• Long-Term Correction: The current dip is not seen as a short-term buying opportunity but potentially a situation where buying the dip could lead to being "underwater for a long time."

Bitcoin Analysis and Potential Downside

The discussion shifts to Bitcoin, noting its significant breakdown and a substantial crypto wipeout.

Key Points:

• Bitcoin Breakdown: Bitcoin has been breaking down for several weeks, with an estimated $400 billion crypto wipeout in the past week.
• Panic Selling: Significant panic selling is evident in Bitcoin's price action.
• Broadening Formation: Bitcoin exhibits a "broadening formation" with a series of higher highs and lower lows, indicating increasing volatility and risk.
• Terrible Pattern: This pattern is described as "terrible" and difficult to trade, typically resolving to the downside.
• Critical Support Zone: Bitcoin has pulled back into a critical support zone, around the $80,000 per Bitcoin mark, which was a significant breakout level in 2024 and a major bottom earlier this year.
• Technical Bounce: The current bounce is seen as a technical bounce at a support level, with buyers attempting to pick a bottom.
• Correlation with Stocks: Bitcoin's future movement is expected to follow the stock market; if stocks struggle, Bitcoin is likely to break down further.
• Potential Downside Targets: If the stock market rolls over, Bitcoin could quickly head towards the $60,000 or $50,000 mark.
• Trading Strategy: The advice is not to trade the bounce but to potentially look for an inverse play or wait for a breakdown through the current level before considering entry.
• Emotional Asset: Bitcoin is described as a "very emotional asset," prone to rapid sell-offs when critical levels are broken.
• Psychological Support Levels: Previous bull cycle tops (around $65,000-$69,000 in 2021) and the previous cycle's top ($69,000) are discussed as potential psychological support levels.
• Pivot Low Break: A break of the pivot low around $74,000 is considered a significant level, potentially leading to a substantial tumble and a long recovery period.
• Previous Scenario Repetition: The current situation is compared to a previous move in 2021, suggesting a potential repetition where a bounce occurs before a significant rollover.
• Long-Term vs. Short-Term: For long-term investors, averaging in is suggested regardless of the entry price. For short-term traders, a bounce to $95,000 is possible, but breaking previous lows would signal further downside.

Gold Analysis and Precious Metals Outlook

Gold is presented as a more attractive asset with strong chart patterns, despite a recent pullback.

Key Points:

• Bull Flags: Gold exhibits a series of "bull flags," which are strong chart patterns indicating continuation of an uptrend.
• Pullback and Pause: After a period of being "frothy," gold has experienced a pullback and pause, which is considered normal within a strong uptrend.
• Upside Potential: The next move for gold is projected to reach $50-$5200 per ounce.
• Stock Market Sell-off as Catalyst: An explosive move in gold is anticipated to coincide with a stock market sell-off, as money flows from stocks into precious metals for a final push.
• Capital Flow: A mass exodus from the stock market is expected to drive significant capital into the gold sector.
• Historical Parallel: This scenario is compared to what unfolded in 2027, suggesting a potential repeat.
• Exit Strategy: If gold reaches the $5200 level, it would be a signal to exit the precious metals space, as it could mark a significant high before a reversal.
• Recessionary Environment: In a recessionary environment with falling stock prices and job losses, fear selling can pull down even good investments like precious metals.
• Central Bank Buying: The current situation is noted as different due to central banks loading up on precious metals, which could support their prices even as the stock market declines.
• Game Plan: The importance of having a game plan and following a strategy is emphasized, rather than predicting the distant future.

US Dollar (DXY) and Bonds Outlook

The US Dollar Index (DXY) is showing signs of strength, and bonds are seen as potentially carving out a bottom.

Key Points:

• Dollar Rebound: The US Dollar Index (DXY) has been rebounding and showing continued strength since the summer.
• Potential for Big Move Up: There is potential for a "very big move up" in the dollar, with targets around 110, potentially reaching 116 or 121.
• Pressure on Metals: A strong dollar will put downward pressure on metals and commodities.
• Dollar and Gold Correlation: While historically inverse, the dollar and gold have shown some recent correlation, but a significant dollar rally is expected to dampen gold's prospects.
• Bonds Carving a Bottom: Long-term bonds (TLT) are attempting to carve out a bottom.
• Economic Weakness and Rate Cuts: If the economy weakens and oil prices fall, inflation could drop, creating room for interest rate cuts, which would naturally push bond prices higher.
• Stocks Down, Bonds Up: A return to the traditional correlation of "stocks down, bonds up" is being observed.
• Preferred Assets: The dollar and bonds are identified as preferred assets, with gold and precious metals seen as a trade that might last a couple of months.
• Canadian Dollar Weakness: For a Canadian investor, holding US dollars is seen as a good play due to the expected fall of the Canadian loonie.

Investment Philosophy and Strategy

The discussion concludes with insights into the speaker's investment philosophy and current strategy.

Key Points:

• Current Strategy: Cash and Sidelines: The current strategy is to sit on the sidelines in cash, waiting for the market to provide a clear signal.
• Patience and Opportunity: Successful traders allow trades to unfold and come to them, rather than forcing them.
• System-Driven Decisions: The speaker's system will signal when to re-enter the market if a new uptrend emerges or to play other assets if the market rolls over.
• Defensive Stance: A long-term defensive or bearish outlook is maintained, with increased caution as the market rises.
• Value Investing in a Reset: The speaker anticipates becoming a "value investor" during a major financial reset when assets are undervalued.
• Protecting Capital: The current priority is to protect capital due to the lack of good value in the market.
• Trend Following: Despite a bearish outlook, the strategy is to "hop back in and trade it" if the trend turns upwards, as "the trend is your friend."
• Strategy for Froth: A strategy involving trading "frothy" pushes to new highs is employed, but with a short enough time frame to exit quickly when weakness appears.
• Emotional Management: Acknowledging that emotions are always present, the key is to follow the strategy and trade every wave with strength, exiting as soon as strength wanes.
• Avoiding FOMO and Crashes: The strategy aims to catch rallies, avoid crashes, and manage small losing trades when the market chops around.
• Where to Find Chris Mullen: The Technical Traders YouTube channel and thetechnicaltraders.com website are provided as resources.