Sell the Nasdaq and Bitcoin and Buy Gold | Chris Vermeulen and Jimmy Connor

Key Concepts

• Nvidia Earnings: Blowout Q3 earnings ($57 billion revenue, $32 billion net income, up 65% YoY).
• Market Reaction to Nvidia: Initial surge followed by a sell-off, mirroring S&P and NASDAQ.
• Non-Farm Payrolls (September): Better than expected job additions (119,000 vs. -4,000 in August), but unemployment rate ticked up to 4.4%.
• Federal Reserve: Governor John Williams indicated a high probability of a December rate cut.
• Market Trend: Overall trend is down, with current moves seen as bounces within a downtrend.
• FOMO Indicator: A tool to identify when retail investors are piling into the market out of fear of missing out, often preceding a sell-off.
• Panic Selling Indicator: Identifies moments of extreme fear and selling, which can signal oversold conditions.
• Head and Shoulders Pattern: A bearish chart pattern indicating a potential significant downside move if the neckline is broken.
• Nvidia's Market Weight: Represents 14% of the NASDAQ 100 and 8% of the S&P 500, making it a significant market proxy.
• Bearish Sentiment on Nvidia: Significant selling by large investors (Michael Burry, Peter Thiel, SoftBank) despite strong earnings.
• Microsoft's Chart: Showing weakness, broken support, and a strong downtrend.
• Google's Strength: Bucking the trend, with potential investment interest from Berkshire Hathaway.
• Gold and Silver: Bullish outlook, seen as a hedge against potential stock market downturns.
• US Dollar (DXY): Bullish outlook, with potential for significant upside, which could negatively impact gold and silver.
• Oil: Bearish outlook, with expectations of further price declines.
• Risk Management: Emphasis on measuring and managing risk in investment decisions.

Market Analysis and Outlook

Nvidia's Earnings and Market Impact

Nvidia reported exceptionally strong third-quarter earnings, with revenues reaching $57 billion and net income at $32 billion, a 65% year-over-year increase. The transcript humorously notes that if Nvidia were a country by GDP, it would rank third globally, ahead of Germany. Despite these blowout numbers, Nvidia's stock experienced a significant sell-off on Thursday, closing down for the day, a trend mirrored by the S&P 500 and NASDAQ. This reaction is attributed to a combination of factors: the stock opening strong on Thursday, driven by pre-earnings excitement, and then failing throughout the day.

S&P 500 and NASDAQ: A Bounce in a Downtrend

The S&P 500 and NASDAQ experienced a sharp gap higher at the open on Thursday, fueled by the Nvidia news and general investor optimism. However, this move was characterized as a "bounce within a downtrend" and a "news-driven move," which are typically short-lived. The markets reached resistance levels, and the subsequent failure to hold gains is seen as a bearish signal.

Key Points:

• Overall Trend: The prevailing trend for the stock market is down, characterized by lower highs and lower lows.
• Resistance Levels: The initial gap up on Thursday pushed the indices into significant resistance areas.
• News-Driven Volatility: The market's reaction was heavily influenced by news, leading to emotional trading.
• FOMO Indicator: The "FOMO indicator" spiked significantly, signaling widespread retail investor participation driven by fear of missing out. This often precedes a sharp decline as institutions unload shares.
• Distribution Selling: Large amounts of shares were sold by institutions into the retail buying frenzy.
• Double Whammy: The day's trading was further impacted by disappointing September unemployment numbers released later, creating a "double whammy" of negative news.

Technical Analysis:

• Head and Shoulders Pattern: The S&P 500 is potentially forming a head and shoulders pattern. A break below the neckline, estimated around the $650 level for the SPY ETF, could trigger a significant sell-off, potentially another 6% or more.
• Oversold Conditions: The "panic selling indicator" spiked, suggesting the market is oversold in the short term, which could lead to a pause or a temporary bounce. However, the underlying trend remains bearish.

Investment Strategy:

• On the Sidelines: The recommended strategy is to remain on the sidelines and wait for clearer market direction. The current environment is described as a "roller coaster" where observing the chaos is safer than participating.

Nvidia's Technical Outlook

Nvidia's chart is described as not looking great, despite its recent pop. The stock has experienced rejections after significant gap-ups, indicating strong selling pressure.

Key Points:

• Frothy Valuations: Concerns are rising that the "AI bubble" might be losing steam, leading to increased selling by large funds.
• Potential Pullback: A 7-10% pullback in Nvidia is anticipated, potentially targeting the $160 level.
• Market Proxy: Nvidia's significant weighting in the NASDAQ 100 (14%) and S&P 500 (8%) means its performance heavily influences the broader market.
• Selling Pressure: Notable investors like Michael Burry, Peter Thiel, and SoftBank have reduced or exited their Nvidia positions, signaling bearish sentiment.
• Staircase Up, Elevator Down: The analogy is used to describe how stocks like Nvidia can rise gradually but fall rapidly, often four to seven times faster.

Argument:

The speaker expresses a bearish outlook on Nvidia, anticipating a significant collapse due to its "ludicrous valuations" and the herd mentality of investors who pile in during uptrends and exit rapidly during downtrends. A "financial reset" in the equities market is seen as necessary to correct these imbalances and create future opportunities.

Microsoft's Technical Outlook

Microsoft's chart is described as "really ugly," showing a strong downtrend after breaking below critical support levels.

Key Points:

• Double Top Formation: The stock has exhibited a high-volatility double top pattern, with good news being met with heavy selling.
• Broken Support: A critical support level has been breached, confirming a strong downtrend.
• Fibonacci Extensions: Technical analysis using Fibonacci extensions suggests a potential further downside of around 4% to the $453 vicinity.

Google's Relative Strength

Google is identified as the only major tech stock bucking the trend, with potential interest from Berkshire Hathaway. This is contrasted with the bearish outlook for Nvidia and Microsoft.

Gold and Silver: A Bullish Outlook

Gold and silver are presented as strong investment opportunities, particularly as a hedge against a potential stock market downturn.

Key Points:

• Gold's Performance: Gold is up 50% year-to-date and is exhibiting a "beautiful stairstep price action" with rallies, pauses, and bull flags.
• Silver's Performance: Silver is up 70% year-to-date and shows a strong price chart with potential for significant upside.
• Consolidation Phase: Both gold and silver are currently in consolidation phases, working out volatility and shaking out weaker hands.
• FOMO in Precious Metals: A recent "extreme FOMO wave" in precious metals saw many investors rush in, which was followed by a typical pullback to shake out participants.
• Bullish Sentiment: The speaker remains bullish on gold and silver, anticipating money flowing from stocks into precious metals.
• Historical Correlation: A chart comparison shows a similar pattern to the period before the 2008 financial crisis, where gold rallied significantly as the stock market sold off.
• Price Targets: Potential price targets for gold are $5,100-$5,200, and for silver, $80 per ounce.
• Patience Required: Investors are advised to be patient with gold and silver, as they may take a few more weeks to mature before significant upward moves.

Argument:

The speaker believes that as the stock market potentially tops out and sells off, precious metals will benefit from a flight to safety, leading to substantial gains.

Caveat:

Jamie Dimon's bullish stance on gold, with predictions of $5,000-$10,000 per ounce, is noted, but his past track record on gold and Bitcoin is highlighted as being poor.

Platinum's Performance

Platinum is also performing well, up over 60% year-to-date. While it's holding up, its chart patterns are considered less clean than gold's, with potential for more randomness. However, it is expected to move in tandem with gold and silver.

Bitcoin and MicroStrategy: Short-Term Bounce, Long-Term Bearishness

Bitcoin and MicroStrategy (MSTR) are viewed with caution, despite potential for short-term bounces.

Key Points:

• Bitcoin's Downtrend: Bitcoin is in a downtrend and has pulled back to a high-volume support zone around $80,000.
• Bounce Expected, Not Recommended: A bounce is anticipated, but trading bounces within a downtrend is not advised.
• Further Downside Potential: If Bitcoin fails to hold support, a further drop to around $50,000 is possible.
• Correlation with NASDAQ: Bitcoin's price action is closely linked to the NASDAQ.
• MicroStrategy's Business Model: The speaker expresses a lack of confidence in companies whose primary business model is holding Bitcoin, preferring direct trading of the cryptocurrency.
• MicroStrategy's Chart: The chart for MicroStrategy is described as terrible, showing a massive double top and a breakdown.
• Price Targets for MSTR: Best-case scenario for MicroStrategy is a bounce to $240, followed by a potential drop to $80 or $40.
• Risk of Speculation: Bitcoin's allure of quick riches can lead to irrational decisions and significant risk-taking, as exemplified by a company that went bankrupt after investing heavily in Bitcoin.

Argument:

The speaker's bearish stance on Bitcoin and MicroStrategy stems from their inherent volatility, the speculative nature of their valuations, and the potential for investors to make irrational decisions driven by the pursuit of quick profits. The focus is on risk management, and Bitcoin is seen as an asset that can lead people to disregard logical risk assessment.

US Dollar (DXY): Bullish Outlook

The US Dollar Index (DXY) is showing signs of a potential significant rally, contrary to widespread bearish sentiment.

Key Points:

• DXY Trend: The DXY has broken out of a rounding formation to the upside, clearing significant resistance levels.
• Potential Upside: Long-term monthly charts suggest the dollar index could reach 110, 116, or even 121.
• Contrarian View: The bullish outlook on the dollar is presented as a contrarian view, as most market participants are bearish.
• Impact on Gold and Silver: A strong dollar rally is expected to create margin calls and force liquidation in precious metals, ultimately driving down their prices.
• Limited Time for Precious Metals: The window for significant gains in gold and silver is estimated to be limited to the next one to three months before the rising dollar exerts downward pressure.

Argument:

Price action is seen as overriding fundamental analysis, and the current technicals for the US dollar point to substantial upside, catching many investors off guard.

Oil: Bearish Outlook

Oil prices are expected to decline significantly.

Key Points:

• Expected Decline: Oil is predicted to break below $56 and head towards $45-$46, with potential to reach the $30s.
• Support Levels: Key support zones are identified on the monthly chart, with a critical pivot point around $31-$40.
• Economic Slowdown: A weakening global economy is seen as a primary driver for reduced oil demand.
• Inflation Impact: A decline in oil prices would be beneficial for inflation control, as high oil prices can significantly impact inflation figures.
• Historical Volatility: The oil market's historical volatility, including negative prices in 2020, is cited as evidence that extreme moves are possible.
• Psychological Impact: While gas prices may have a relatively low direct impact on most people's budgets, they are a highly visible and psychologically significant indicator of economic conditions.

Argument:

The downward trend in oil, coupled with potential economic weakness, suggests a continued decline in prices, which could help mitigate inflationary pressures.

Summary and Conclusion

The discussion concludes with a summary of the key market outlooks:

• S&P 500 and NASDAQ: Expected weakness in the coming days and weeks, with potential to test support levels around the 200-day moving average. A significant downside target of 56% is mentioned if a major head and shoulders pattern plays out.
• Gold and Silver: Bullish outlook, with potential for significant gains in the next one to three months, driven by a flight to safety from equities. Price targets of $5,100-$5,200 for gold and $70-$80 for silver are reiterated.
• Bitcoin: Potential for a short-term bounce from current levels, but overall bearish sentiment persists due to its downtrend and correlation with the NASDAQ.
• US Dollar: Strong bullish outlook, with potential for significant appreciation that could negatively impact precious metals.
• Oil: Bearish outlook, with expectations of further price declines due to weakening economic demand.

The overarching theme is the importance of following price action, managing risk, and remaining patient in volatile market conditions. The speaker emphasizes the need to step aside when market direction is unclear and to avoid making emotional investment decisions based on news or hype.

Call to Action:

For those interested in following the speaker's analysis and services, they can be found on YouTube ("The Technical Traders") and at their website, thetechnicaltraders.com, where they manage portfolios and share daily analysis and ETF trades.