Stocks Could Go ‘Absolutely Ludicrous’ Before The Next Correction

David

The S&P 500 and Dow Jones are at all-time highs, but the NASDAQ is down 30 bps, indicating a rotation out of tech stocks into other sectors.

Chris Vermeulen

We are scaling out of tech positions after hitting targets near the NASDAQ high, but still riding the trend higher. Underlying technicals are starting to break down, with big money moving into utilities and real estate as pockets of safety.

David

If tech sells off, wouldn't that lead everything down eventually?

Chris Vermeulen

I expect a sharp correction in tech eventually, but money is rotating into the broad market (Dow, small caps, micro caps). However, one piece of bad news could trigger a sharp breakdown due to momentum traders.

David

Which index have you been long on?

Chris Vermeulen

We've been long the S&P 500 and the NASDAQ (QQQ).

Chris Vermeulen

We use a two-lens approach: price action (SPY daily chart) to determine trend and money flows, and a sentiment/momentum indicator (color-coded) to see underlying strength. We got long on April 9th.

Chris Vermeulen

The market is having controlled pullbacks. Yesterday's panic selling led to a gap lower this morning, but bargain hunters stepped in to fill the gap and rally.

David

How do you place stops in a bull market?

Chris Vermeulen

For long-term investments, we use a 20% trailing stop under price. For short-term trades, we use stops based on the asset's average true range (e.g., 5% for S&P 500).

David

Do you have a specific upside level to get out, or are you riding momentum?

Chris Vermeulen

We have statistical targets for the NASDAQ and S&P 500. When hit, we trim profits and move stops up. This strategy underperforms in strong rallies but protects capital in corrections.

David

What would trigger the end of this rally?

Chris Vermeulen

When our sentiment chart turns red (distribution selling by big money managers) and the short-term trend turns down, we get out. A hard stop is a secondary trigger.

David

Any alternative assets you like right now?

Chris Vermeulen

Equities are the only play right now. I'm watching the dollar index (DXY) for a potential breakout above 100-101, which would be a warning sign for stocks and metals, and a good defensive play via UUP.

David

Would you place similar odds to the prediction market's 30% chance of S&P 500 below 6300?

Chris Vermeulen

Using Fibonacci retracement from the recent low, a 38% retracement targets 6000, which is a high-probability pullback level. A 50% retracement targets 5600. Both are still bullish in a 10-year cycle.

David

When something moves up faster than usual, do you double down or stay defensive?

Chris Vermeulen

We don't double down in high volatility. We maintain our strategy. The current move is similar to the 28% rally after the tariff selloff, which led to a grinding, choppy advance.

David

If gold had its euphoric phase, shouldn't it be in a complacency phase now?

Chris Vermeulen

Yes, gold is pointing to lower prices. The long-term trend is up (bull flag targeting $8600), but short-term price action points to $3600 (a 20% haircut back to the pre-parabolic breakout level).

David

Will Bitcoin outperform gold this year?

Chris Vermeulen

Bitcoin is in a bear market with a series of lower highs and lower lows. It will likely underperform gold. It could drop to $45,000 or even $16,000 based on the bear flag pattern.

David

Bitcoin and NASDAQ have diverged. How do you evaluate the outcome?

Chris Vermeulen

Bitcoin is losing momentum as traders rotate into tech and precious metals. The divergence suggests money is leaving crypto for working assets.

David

What is your technical outlook on oil?

Chris Vermeulen

Oil is choppy and news-driven. I wouldn't trade it. Longer-term, supply-demand issues could push oil to $120-145, which might put a top in the stock market.

David

Canada has two consecutive quarters of negative GDP. Is it only a matter of time before the TSX reflects that?

Chris Vermeulen

The TSX is commodity-heavy and tends to outperform in late-cycle bull markets. It's an early warning sign, but the market is still going higher. A couple of negative events in tech/AI could turn things around.

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