“Buy the Dip” May Stop Working...  Is a 20% Crash Coming Next? w/ Chris Vermeulen

Quick Overview

Chris Vermeulen suggests that the current market environment, particularly the weakness in the Nasdaq (NQ) and the Magnificent Seven ETF (MAGS), resembles the setup before the April 2020 COVID-related sell-off, indicating that a significant multi-year recession and sharp decline, potentially 20% or more, could be coming, especially if key support levels break.

Key Points: The Nasdaq 100 (NQ) is showing more weakness than the S&P 500, having broken below its 50-day and 150-day moving averages, signaling a short-term downtrend. The MAGS (Roundhill Magnificent Seven ETF) chart shows a topping pattern resembling a head-and-shoulders formation, suggesting a significant reversal similar to the March 2020 COVID-19 crash is possible. Vermeulen predicts that if the current support on MAGS breaks, the index could fall sharply, potentially down 20% or more, leading to a multi-year recessionary cycle. The market decline is being led by US Tech/Software stocks (like the MAGS components), which are now moving down sharply after previously leading the market up. Gold (GC) shows continued strength, having recently broken out to new highs, suggesting investors are seeking safety or that global economic uncertainty is rising. Vermeulen's strategy is to follow the trend until it proves wrong, rather than trying to predict bottoms, and he will wait for a clear sell signal before changing his long positions. The current market action, with the MAGS leading down, is distinct from the April 2020 tariff correction comparison, where retail stepped in to buy the dip, suggesting the current environment is different and more severe.

Context: Chris Vermeulen, Chief Investment Officer at TheTechnicalTraders.com, joins John Gillen on Milk Road Macro to discuss the current state of the equity markets, focusing heavily on the technical indicators for the Nasdaq 100 futures (NQ) and the MAGS ETF, which tracks the Magnificent Seven stocks. Vermeulen uses historical chart comparisons, specifically contrasting the current setup with the sharp sell-off in early 2020 due to COVID-19, to project potential downside risks for technology-heavy indices.