Markets On Verge Of Big Breakout (Uncut) 01-22-2025
Markets On Verge Of Big Breakout; Chris Vermeulen Reveals Top Trades
Trump’s inauguration week is this week. What’s happening after this week? Will markets react positively or negatively to Trump being in office? We’ll see what he signs into office. We’ll talk about markets.
What’s next? Trades, both short and medium term. Chris Bermuda joins us today at TheTechnicalTraders.com. Welcome Chris. Welcome back.
First time I see you in person. Great to meet you. Great to meet you in person.
Finally, after all these years, we finally meet in person. January 10th was our last conversation, link down below. You had called for volatility in January, which is the theme of our conversation.
On that day, I’ll just revisit for the audience, jobs numbers came out higher than expected. The Fed made pause, rate cuts, which was bad news for markets. The S&P was down like 3% that day.
The S&P has made back most of its losses for January. We’re now back near 6,000 points. So a lot of volatility, a lot of swing momentum, back and forth.
What is the market signal right now? Is this just, is what we saw previously in the month just noise there? Are we back in the bull market here? Yeah, I mean, that’s the big question. And if we look at the markets, we tear it down, look at the technicals. The stock market gave us a sell signal, not a sell short signal, but a signal to get out of stocks about a month ago.
And really, since then, the market’s trying to figure out what to do. We got Trump coming in. We got all kinds of chaos that’s going to happen.
And seasonality-wise, January is the most volatile year in terms of, usually, we see sideways markets, which is what we’ve seen. We see big rallies and pops. You and I were speaking.
We had a big drop on news. And now, it’s regained that. Typically, news-driven moves are negated a few days or a week or so later.
And so we’re right back to where we were. And so right now, we’re in a holding period. What is going to happen when Trump gets in? The stock market is on the verge of another leg higher.
Is he going to create a bump, and we’re going to see things go? Or is the market going to fall off a cliff and sell off? And based on all the different asset classes, cycles, everything is mixed, which is why we’re on the sidelines. We’re in the U.S. dollar. We’re just waiting to see how the next two weeks unfold and to see if we get a new buy signal.
You were calling for a potential 25% drawdown from its peak in December, which is the ultimate correction point. A lot of people, it’s remarkable because a lot of people in the comments actually agreed with you. When a lot of people feel bearish, what does that sentiment indicate? Is that a contrarian indicator for going along? Generally is, yeah.
Okay. If everybody agrees with me, that’s not a good thing. At least the good thing is, I follow price, so I don’t really care which way it goes.
I’m not a predictor. I just like to share what I think is going to happen, and I end up trading with the price. So if it goes higher, it doesn’t matter.
So what are you doing? Are you mostly cash right now or no? Yeah, we’re holding the U.S. dollar index. So an index ETF. So just with the dollar, we have continued uncertainty, which we are going to, and if they’re selling in the stock market, the dollar should go up.
So we’re just holding the dollar. It’s a low volatility, super slow moving. People don’t see the dollar or a cash position as a position, which I think is a lot of people’s faults.
Sometimes the best position is to stand aside, let the market figure out a direction, and then when there’s a clear direction, move in to whatever asset’s moving. So right now we’re pretty much sitting on the sidelines. Okay.
And what signals in particular are you waiting for before you get back in? Well, in a way, I’m hoping the stock market’s going to have one more push higher. I think if Trump gets in, depending on what he says and does, it could create a big surge in stocks, and potentially in the next week or so, we’ll have another buy signal to re-enter the stock market. The Nasdaq has potential to run about 10 to 11 percent, so there’s some good upside potential.
And when you redeploy capital, are you waiting to redeploy it back into the equities indices in general, or specific sectors? It would go into either the S&P 500, the Nasdaq, or a split of both, depending on how they both move. How would you differentiate between the Nasdaq and the S&P? Well, Nasdaq’s more growth stocks, it’s tech heavy, it sometimes can generate a signal before the S&P 500, or vice versa. I ask this question somewhat facetiously, because they’re both kind of tech indices at this point.
Well, believe it or not, not the way I look at it, and not how I compare them with other assets. I compare intermarket analysis, how they move to other ones, so they’re both stock markets, they both move together, some move more than others. I still consider them different, I consider the S&P 500 more of a broad market, there’s no doubt, tech heavy.
But it still moves differently, it has different characteristics, and there was a time, you and I were talking a month or two ago, it was actually the S&P 500 was outperforming the Nasdaq, which was a bearish sign, and since then we’ve seen the markets pull back. I’m interested in your presentation that you made here at the Vancouver Resource Investment Conference, there were, I think, three pillars of investing that you outlined here, tell us about that. Yeah, so I was really just trying to share with investors, there’s three really dangerous, high risk, low return strategies that I believe most people deploy and use, and don’t really realize the risks.
So I was showing some comparison charts of the buy and hold strategy, if you ever buy an old strategy, long story short, it’s a roller coaster ride, you’re going to be holding through bull and bear markets, you’re going to have a ton of money, you’re going to go negative, it’s a very emotional thing. The other thing with the buy and hold is you hold equities, you hold bonds, typically, and if you’re diversified, it means you have winners, and you’re diversified, so you also have losers. And so your winners get neutralized by your losers, and you end up with a really kind of average return.
That’s why people who use the buy and hold strategy don’t retire until they’re 40 years late, you need to put in 20, 30, 40 years to make a real good investment account. So that’s number one, it’s poor returns with buy and hold. The second is people fall in love with a sector, they fall in love with a stock, it’s like the marijuana space.
What do you mean they fall in love, it’s just like, you don’t, what do you mean by that? Yeah, so typically, people get lured into the stock market by big performance. I always think of the stock market, big rallies in stocks are like a bug zapper light to like a mosquito. So as soon as there’s a stock moving and rallying, everybody has FOMO, and they all run to the same, say the marijuana space, they all run into those stocks, they’re doing well, they kept running, and they don’t want to sell them because they’re doing well.
So they hold on to them, they fall in love with the concept, and then they just fizzle out and they die. And then you go a decade without any real returns. We see in the precious metals space, you’ll go five, six years with no real returns with stocks.
So I don’t believe you should be holding something just because you love it, you should be holding something because it’s going up. And it really doesn’t matter what it is. So I’m all about, if it starts to go down, get out, find a new stock or sector to get into that’s going up, because you waste a lot of time.
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Can you give us one or two examples where you know the market’s just wrong? Right. Well, I think the marijuana space is toast. Okay.
Is that what you mean? Like a sector specific? Yeah. Any sector or stock or trade that you looked at where you, like some, let’s say it’s being pushed up or down and you just know that that direction is not going to last. Whoever’s doing the pushing in either direction, that’s going to get trend reversed.
And how would you evaluate that? I think the one that’s standing out right now imminently is the energy space. You and I touched on this a week or two ago. Energy stocks have been going up for the past year and a half.
Oil prices have been going down. I think there’s going to be a huge reset in energy stocks. So I don’t know why they keep going up, to be honest.
I don’t really follow the fundamentals or why everybody’s piling into it. But overall, the chart pattern for energy stocks like XLE has got all these layered in pivot lows on the chart that when it starts to sell off, it’s going to just trigger layers and layers of protective stops. And I think there’s going to be like a 40 or 50% wipeout in energy stocks and pricing.
And it’s going to hurt, especially dividend holders, because a lot of those are dividend. How are you convinced that the stocks are going to fall 50% versus the underlying commodity oil is not going to go up 50%? You know, because the case you’re making is that there’s going to be convergence. For sure.
Right? Yeah. Well, nobody knows. Yeah.
I’m just showing what the charts and what the analysis is showing. I believe the economy is slowly going to come to a grinding halt. We’ve had some half decent job numbers.
But overall, you look at like a real estate, I touched on real estate today. We have record amount of homes coming on the market. Yeah.
Very similar to 2007. We have very low orders for homes being like pending home sales. Right.
And yet there’s tons of homes for sale. And as soon as the housing market starts to roll over, we got high mortgage rates. I don’t think they’re going anywhere anytime soon.
We’re going to see housing prices start to fall. And then most investors who are in the stock market, they’re going to feel the pain from the real estate side. Yeah.
And as soon as the stock market starts to show weakness, they get nervous. They’re going to have weakness on their equities portfolio. Right.
And then people are going to close their wallets. And then we’re going to see the recession kick in because people are still spending money. We are still, the business and the economy is still kind of growing and moving along.
But once investors feel like they’re losing equities, they’re losing real estate value, they’re going to close their wallets and stop doing it. And that’s when businesses sales start to drop, layoffs start, and then the whole kind of thing goes. So I think we need the real estate tip, which I think is going to happen by the end of this summer.
In a big way. Okay, we’re going to come back to that. But I want to touch on something you said earlier, which is that you didn’t follow the fundamentals of the oil companies.
Tell us about the methodology that you use to make trading decisions. Another criticism I heard or read in the comments section of our last videos is why are we listening to your analysis on certain sectors if you don’t follow the fundamentals, but you look at the price and the price tells the story. Why? I don’t like fundamentals because I traded them before back in the tech bubble.
I only bought stocks that were growing quarter after quarter after quarter and the companies got annihilated. I’ve lost all my investment capital in the 2000 tech bubble and I wasn’t even holding tech stocks. And that was when it hit me.
I was like, okay, price has nothing to do with fundamentals. It has to do with are people selling stocks and is the price going down or is it going up? So I don’t follow those fundamentals. The strategy I focus on, you and I talk about all kinds of sectors that I might not specifically be trading in my investment strategy, my asset revesting strategy, but you need to know what’s going on in those because they paint the picture for what to expect down the road, that the economy is slowing, that all these things are happening and they’re going to affect other parts.
So if the energy sector drops, dividend stocks are going to get hit. We’re going to see retirees and investors feel a lot of pain because there’s huge danger in holding dividends. It means like a perfect example is in the last couple of weeks, the stock market is down about 4.5% and dividend stock market, if you hold dividend stocks, you’re down about almost 10%.
So you have twice the amount of risk. Even during COVID, stock market fell 35. The dividend space fell about 48%.
And the crappy part is dividend stocks fall faster because the majority of investors all hold the big blue chips, all these dividend paying stocks because that’s what they’re told are these solid companies, make sure you hold them. The problem is all these investors panic at the same time and they all sell their stocks, which happen to be the same stocks, which is why dividend stocks carry a lot more risk. They fall a lot faster during panic phases than the stock index itself.
And so I think people need to understand all these moving parts because it plays into my overall strategy. Do we own stocks? Do we not? Do we own bonds? Do we not? I like to look at the market like the ocean toxic. The tide’s going up.
What happens to boats? They all go up. So the stock market is the same. In a bull market, we hold stocks.
In a bear market or a falling tide, we move away from stocks. We move to something else. And generally, it’s going to be bonds, a currency, or a cash position.
That’s where the money flows generally. It’s equities, bonds, or cash. Sometimes it’s a bit of both.
And that’s where you can gauge the flow, the big flows. Individual stocks and sectors are very hard to gauge. But the whole world trades either stocks, bonds, or cash.
And that’s what I follow is those big tidal waves where money’s flowing. Do we have any indication as to where the money is flowing now currently? No. That’s why we’re in this mixed … You know, I love coming to these conferences here because I get a sense of what the audience wants to know about, what cares about.
On more than one occasion just today, people came up to me and said, hey, I watch your show. I’ve watched Chris on your show. But how do you feel about the markets right now, like me personally? How do you feel the market? Are we topping? And I said, let me ask Chris later.
But that goes back to my first question. How would you, you know, mixed signals right now, how would you go about evaluating that question? Like walk us through your thought process of answering at any given time, is the market topping? Right. So you kind of got to peel it back by time frame.
So it depends. Like is it topping on a short-term strategy? Yeah. It has.
It gave us a sell signal a couple of weeks ago. But when we look at our long-term investment strategy of the S&P 500, we are still in a bull market. Yeah.
Yeah. And that’s what we show with our investors. We are long the markets with our investment strategy.
So I believe it’s starting to top, but it hasn’t topped until it tops, like until it’s actually turned its corner and starts to go down. I believe all the signs are there. I think this is the year it’s going to happen.
But until then, we will, as a long-term investor, continue to hold stocks in the long-term portfolio. As a short-term trader, we’re in cash, because as you said, like, where’s the money flowing? It’s kind of everywhere. Yeah.
So let’s just step back. And I bet you within a week, we’ll have a clear direction. Are stocks rallying or are they dropping with Trump? And that’s what we have to see.
Energy sector. We’ve talked about stocks. How do you feel about bonds right now? The 10-year has come down from 4.85, now it’s like 4.67 today or something like that.
So how do you feel about that? I think bonds are going to be a great trade once they bottom. The price of bonds continues to struggle, because people don’t, you know, the rates don’t really want to drop anytime soon. And so people are selling bonds, getting out.
I do think there’ll be a major shift, and I think they’re going to rise from the ashes. But it probably won’t be till late this year. We need a lot of blood on Wall Street for them to start cutting some rates.
And once they start doing that, bonds are going to put in, I think, a miraculous rally. I think it’ll be a very good opportunity to the upside. But I’m not one for picking a bottom.
Do I think it’s close to a bottom? Yes. Would I buy here? No. I’d much rather actively trade and get into the stock market if it’s going to go higher than try to hold bonds, because people have been trying to pick the bottom in bonds for years.
It keeps making these lower lows, these huge waves. And that is a lot of wasted time. So the strategy I focus on is our monies, we’re not wasting time in something.
We’re either in something making money in asset class, or we move to cash. We still earn interest, but we have no risk. So we’re either making money or risk-free trickle of money versus trying to pick a bottom in bonds.
And it might not bottom for another year and a half. That’s a lot of wasted time. So that’s what I focus on.
We don’t have wasted time in carrying risk. We had a resource conference, and one of the common questions, again, at this conference is what should I do with the resource sector? The underlying metal or the stocks? How do you feel? I like the underlying metal myself. I think it’s more stable.
I think gold moves a lot slower. When you look at gold, it’s something you put a lot more money to work, and you don’t have to wake up with it down 20, 30, 40 percent. Individual stocks are volatile.
The whole world buys gold as an asset class, where individual stocks are more of a speculative play. There’s not a lot of liquidity. So when fear hits the market, and say we get into a recession and things like that, it doesn’t matter how good the company is.
There’s going to be net sellers in the stock market, and the smaller the company, the more they drop. So I think there’s going to be a sweet spot to get into miners, and I’ll be like, forget gold. Now it’ll be a miner trade, kind of like 2009 and beyond.
It’ll be just this massive opportunity. We’re not there yet. Right now, it’s like gold, I think, will hold its value and go a little higher.
Gold stocks, I think they’re a struggle. They’re a higher risk play. I don’t think they’re worth getting into.
Yeah. Isn’t gold also a speculative play in the sense that you don’t know what it’s going to do next year? Right. You’re speculating on what is going to happen.
For sure. But it’s stable. Much more stable.
It’s not like a company that goes under and loses a deal, or doesn’t find something in a drill. It has global value. The whole world sees it.
Just because it moves slow, I think, is why a lot of investors go to it. Everything is a speculation when it comes to investing, but the thing is, it’s very stable compared to other things. Okay.
So let’s finish off with your three strategies again. For the longer term buy and holders, anything different that you would recommend them do – well, not so much recommend, but suggest that they look at in terms of market timing and market movement than, let’s say, a shorter term trader? Is it a completely different methodology, or are we simply stretching the timeline now but using the same methodology here? So the strategy I use, my ACS strategy for asset-driven investing, is what I also used to use as a 30-minute trading strategy. I used to have it on a minute.
So it’s the same strategy. You can bring it down into shorter time frames. It really comes down to you deciding what time frame – how active a trader do you want to be, right? So more or less, when I look at the markets, I want 5 to 12 trades a year, and I pick a strategy that fits that way.
But when it comes to a shorter-term trader and strategy, it really is… Do you think the average person should be a trader versus just handing the money to a professional to manage? I think most traders lose money. The more you trade, the more likely you are to lose. The shorter the time frame – there’s all kinds of studies that show 97% of day traders – actually, they’re just active traders who trade for 300 days or more – 97% of them lose money.
Trading is very, very difficult. I don’t believe in going to a professional, just leaving it there, because you’re going to go through the rollercoaster ride. They all use the same strategy – it’s fine and old, diversified.
You pick a few stocks that you want in there that you love, just so you’ve got your mix that make you feel happy. But most financial advisors, they all fit the same mold, and they do that for protection. If they all lose their clients’ money together during a bear market, nobody gets sued.
If they all make money, they all look like heroes. It’s the advisor who goes out on his own and does his own thing, and then the client loses money, then they can sue them. I’m not a fan of the buy and hold and just having it managed, unless somebody knows what they’re doing, versus what I do.
I rotate my money into these assets, these ETFs. People can copy my trades. That’s what I do.
I just manage my money. My newsletter, I share. I’m buying this with this allocation.
Here’s my stops. Here are my targets. I provide auto trading.
People can have it done for them. Just because advisors, they’re not traders in terms of active investors. They don’t know how to rotate.
They don’t understand cycles and all of that. Give us another concept or strategy that has not worked for you in the past that you no longer do, but you learn from. For example, you mentioned trading fundamentals in the dot-com bubble burst.
That didn’t work for you, so you gave up on that. What else did you do? I day traded. I still do day trading.
It works. I like day trading, but it’s like a job. Every day, you’re hunting for stuff and finding stuff.
It’s not that it didn’t work. Futures trading didn’t work out. Futures trading is so much leverage that it amplifies your emotions.
A tiny little position, you have a $500 position on the SP500 is moving $150,000, so a couple ticks. In the blink of an eye, you could be up or down thousands of dollars based on your $500 investment. You’re up or down 200% or 300% like that.
I used to do that. I blew up my last trading account, Trading Futures. The same day I opened it, I blew it up.
I’d lost all my money doing revenge trading. I lost money, and I kept doubling down and adding positions. Then the markets closed, and then I had a margin call, and my account was done.
I ended up refunding the account a few weeks later. First day I went in, still with the same revenge trading. I’m like, just going to have to like… Did you have a stop loss? No.
I kept going in, hoping the market was going to turn. I blew up the account the same day I started Trading Futures on it, and then I stopped trading for months. It shook me to the core.
I lost all confidence. What would you have done differently today with that experience? I don’t trade leveraged vehicles anymore. I don’t even trade leveraged ETFs because I don’t feel like you need to leverage something.
The strategy I use is compounding, which is the strongest force in the universe. From Albert Einstein. I use compounding in a low-risk strategy.
Low risk, and then I just let it compound. What would I do different then? I would have rules. I’d have stops.
I’d have a much bigger account. Of course, most people who get into futures or options trading have small accounts. When you take a hit, it’s a huge chunk of your overall portfolio.
You have to trade aggressive. If you have a big account and you’re trading one futures contract, it’s not going to make you sweat. When it’s a huge chunk of your portfolio, you’re like, I just lost 25% of my portfolio in that trade.
It makes you a very bad emotional trader. When you were a day trader, what did you do to screen for things to trade? Did you have a screener every day? How did you find things? Were you just trading a few things? There’s a bunch of criteria. More or less, I would trade only stocks under $20, ideally under $5, and above $1.
That was a sweet spot. Between that range, they have biggest percentage moves. Then you look for the most active, so the highest volume free market.
Then more or less, you follow the NASDAQ level two. I only traded NASDAQ stocks. If you can read the market makers, find the axe, the person who’s controlling the stock for the day, they have all these tricks.
They do these things to make it look like it’s about to sell off, but it goes the opposite direction. They do all these things to try to throw traders off. Once you understand these, it’s like clear as day.
Price gets to resistance. You see all this selling come into the level two. Everybody starts to sell.
Then the market goes the opposite direction. What they do is they put these trades in, but then they pull them out just before they get triggered. There’s all these little tricks.
The key is between $1 and $20. You want the most active free markets. You never know what it’s going to be.
Really look at the market about half an hour before the open. It’s always some random little company. You don’t know what they do or anything.
Trading the pure, it’s an emotional day for whoever’s involved in it. You just take advantage of those moves. Are you going to apply your framework to cryptos anytime soon? Probably not.
I just don’t have a passion in crypto. We recently did a crypto trade on Bitcoin. I’m just listening to you talk and I’m thinking, what fits that criteria today? Well, it’s like shit coins.
If you were to remove the ticker completely and just don’t look at it, what’s the difference? Technical analysis works on everything. The only difference is everything I use. The reason I use the equities market, the bond market, currency, and cash is because it’s a huge market.
There’s trillions of money flowing all day. I use a bunch of different markets like gold and utilities and different commodities and things like that to gauge what’s going on. When you go to the crypto space, it’s either going up or down.
I don’t have any of these other things. The stock market is monthly, bimonthly, and people putting money into their paychecks into the stock market. There’s constant cycles.
Economic data goes in cycles. Not that we use it, but it creates these waves in the market, these moves. Crypto space is just, I don’t know.
I don’t follow it enough to know, but I don’t think there’s rotating data that comes out. There’s not people that put paycheck money in every, there probably is, but nothing like the stock market. I want to gauge the ocean tide of investors, between equities, bonds, and cash, and look for the big waves rolling through.
Well, let’s follow up in a couple weeks after Trump has had some time to sign some executive orders and see how the markets react to that. Good to see you in person. Pleasure.
Yeah, you too. Thanks, Chris. We’ll see you soon.
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