In a recent interview that has sent ripples through the investment community, Chris Vermeulen, the founder and chief market strategist at The Technical Traders, issued a stark warning about the current state of the global financial system. Featured on Palisades Gold Radio, in an episode, Vermeulen laid out a compelling case for an impending market downturn, with gold acting as a critical indicator.
Drawing on his extensive experience in technical analysis, Vermeulen didn't hold back in his assessment. "We live in a fantasy world now. Reality has been destroyed," he declared early in the interview, highlighting a significant disconnect between asset valuations and the underlying economic reality. He argued that the prolonged period of market gains, fueled by a persistent "buy the dip" mentality since 2009, is unsustainable and on the verge of a major correction.
Vermeulen placed particular emphasis on the behavior of gold, which he considers the "ultimate barometer of fear in the market." While acknowledging gold's recent impressive rally to its 100% Fibonacci measured move, he cautioned that this "blowoff phase" could be a deceptive peak before a significant pullback.
"This blowoff phase in gold, while yes, it's super bullish and it's still in an uptrend, it is screaming right now that it is like about to come falling along with the stock market," Vermeulen explained. He anticipates a potential retracement in gold prices to the $2300-$2600 range, a level he would view as a strategic opportunity to increase his physical gold holdings. This pullback, he believes, will occur as the broader market experiences a significant sell-off.
Vermeulen challenged the notion that the current market stability indicates a bottom. He described the present phase as a "stage three topping phase," where superficial calmness masks underlying weaknesses. He believes the recent upward movement in the stock market is merely a "bare market rally" or a "dead cat bounce" that will ultimately fail.
"As a long-term investor, you just want to step aside. Let this market sort itself out," Vermeulen advised, suggesting that holding cash is the most prudent strategy to protect capital during this precarious period. He cautioned against the "buy the dip" mentality, which has been successful for years but now carries a significant risk of substantial losses.
Beyond technical indicators, Vermeulen pointed to a confluence of concerning economic data suggesting an impending slowdown. Declining hiring rates, a drop in private sector job openings, and a nascent rise in the unemployment rate were among the factors he highlighted. He also noted worrying trends in commercial real estate and a build-up in housing inventories, signaling potential trouble in those sectors.
The sharp decline in crude oil prices also raised a red flag for Vermeulen. "Once oil breaks down, clearly breaks down below it, that is to me is an a warning sign that the economy probably the global economy is coming to a grinding halt," he stated. He cited a significant drop in transportation and travel as indicators of weakening economic activity.
Interestingly, while the US Dollar Index chart appeared "ugly" to Vermeulen, he anticipates a strengthening of the dollar against other currencies, particularly the Canadian dollar. He pointed to a "massive bottom" formation in the USD/CAD chart and expects the exchange rate to continue pushing higher. "I want to hold US dollars because it's worth more Canadian dollars," he explained, viewing the Canadian dollar as having pulled back to a significant support zone, suggesting a potential rally for the USD/CAD pair.
Vermeulen expressed less enthusiasm for silver, despite acknowledging a potentially bullish chart pattern. He highlighted its higher volatility compared to gold and suggested focusing on the more stable precious metal during this uncertain period. Similarly, while Bitcoin has shown instances of decoupling from the NASDAQ, Vermeulen views it as a riskier asset with unpredictable trading behavior.
When pressed on the meaning of "financial reset," Vermeulen clarified that it doesn't necessarily imply a new currency. Instead, he described it as a period where "everything is getting repriced." This occurs as excessive leverage is unwound, leading to a flood of selling and a significant correction in asset prices until they reach more sustainable valuations. "It's just a reevaluation event. It's either protect your capital or ride it down," he warned.
Concluding the interview, Vermeulen urged investors to prioritize capital preservation over chasing potential gains. "It's better to miss out on some gains than it is to lose 30 to 50% of your portfolio and downgrade your retirement or lifestyle," he advised. He emphasized that opportunities to reinvest will emerge after the market correction and that protecting one's wealth should be the primary focus during these "pretty scary times."