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Ask The Expert

Ask The Expert - Chris Vermeulen - October 2020​

Ask the Expert with Chris Vermeulen

One of Eric’s favorite strategists and technical analysts, Chris Vermeulen, joins us this month on Ask the Expert. Chris has been involved in the markets since 1997 and is the founder of Technical Traders Ltd. He is an internationally recognized technical analyst, trader, and author of the book 7 Steps to Win With Logic.

Through years of research, trading and helping individual traders around the world, Chris learned that many traders have great trading ideas, but they lack one thing: they struggle to execute trades in a systematic way for consistent results. His mission is to help his clients boost their trading performance while reducing market exposure and portfolio volatility. He has also been on the cover of AmalgaTrader Magazine and featured in Futures Magazine, Gold-Eagle, Safe Haven, The Street, Kitco, Financial Sense, Dick Davis Investment Digest and dozens of other financial websites.

This month, Chris answers seven of your listener-submitted questions, including:

  • What is ahead for the mining shares?
  • What is his favorite technical indicator in spotting a change in trend?
  • Plus: Which sectors look most attractive right now?

For the answers to these questions and more, listen here:  

Announcer: You're listening to "Ask the Expert" on Sprott Money News.

Craig: Well, greetings once again from Sprott Money News at sprottmoney.com. It's the month of October 2020. And it's time for your "Ask the Expert" segment. I'm your host, Craig Hemke. And joining us this month is Chris Vermeulen. Many of you might be familiar with Chris. Eric mentions him often during our Weekly Wrap-up segments. And I know that he's one of Eric's favorite strategist and technical analyst. Chris is actually the Chief Market Strategist at a website called thetechnicaltraders.com. And we've got a whole list of questions that have been sent in for Chris this month and I look forward to lay it on him. But for now, Chris, thank you so much for joining us.

Chris: Yeah. Thanks for having me on the show, Craig.

Craig: It is our pleasure, no doubt about it. And again, hey, before we get started, for all of our listeners out there, you can always catch the Weekly Wrap-up segments. You can also catch these "As the Expert" segments on all of your favorite audio and video channels like YouTube, SoundCloud. You can find it on Twitter, Facebook, whichever channel you prefer. Please be sure to subscribe. And also give us a like, if it's something that you enjoy.

Chris, I've got, like I said, a list of questions for you. Actually, I have seven of them. But before we get started, would you please just take a second and introduce yourself? Tell everybody a little bit about your background, and a little bit about The Technical Traders?

Chris: Sure. Yeah, well, I got involved in the markets in 1997. And that was during a raging bull market. And I learned to buy every dip and trade with fundamentals. And eventually, I learned the hard way after the 2000 market drop that fundamentals wasn't really the best way to trade because it seems like winning stocks would be falling, even though they were earning and growing.

So, I flipped my analysis to technical analysis. And so now I strictly follow price. I'm 100% technical based. I follow price. And that's really the only way all of us as traders and investors make money is if price moves in our favor. So, why follow anything else but price? And so I follow it very closely. I cover all the major indexes, commodities, and hot sectors, whichever is moving at the time. And with my trading newsletter, I offer a video every morning to subscribers where I walk through the charts that happened yesterday, what's happened at overnight trading and pre-market today.

And then you get the video before the opening bell so you're fully prepared for what kind of chaos is going to happen for that day, how it'll affect any of our positions, and why. Very educational videos. You'll learn a lot. And I share the trades that we do. I focus on ETFs, and with subscribers. Really educational. Very kind of solid foundation just based off analysis on price, and that it really whittles out all the noise of, you know, who's going to be elected and stimulus and news and COVID. Really, if you follow price, price usually gives you some insight as to if there's good or bad things coming around the corner.

Craig: And all of this information can be found at the website, including subscription cost and the like?

Chris: Yeah, everything's there. We got a free newsletter. If you go to the top menu bar, free research. Every day, we put out some really interesting analysis. Today we put something out on Netflix and Snapchat. There's an opportunity right there. They're coming out with earnings tonight. So, pretty exciting stuff.

Craig: And again, thetechnicaltraders.com, correct?

Chris: Yeah.

Craig: Well, all right, my friend. Let's just dive in. Like I said, we've been collecting questions for you over the last couple of weeks. As always, folks can use the email address submissions@sprottmoney.com for questions for our guests or for weekly questions to Eric and the Weekly Wrap-up. Question number one, I know this is something that I've been complaining...really, that's what I've been doing, I've been complaining about now for the last couple of months, and that is this, all of a sudden one to one correlation between the dollar index and the price of COMEX Gold. Almost driven by algos it seems.

If that continues, it becomes important to know where the dollar index is going. And so question number one is, what is your current forecast for the U.S. Dollar Index?

Chris: Mm-hmm. Well, I mean, really in September, August, September, I think the dollar put in what looks to be a bottom. It has a very kind of signature bottoming formation. And then we saw, recently in the last month and a half, we saw a nice rally, bringing it to some kind of multi-week highs or multi-month highs. And now it's been flagging out in a bullish pattern. To me, it looks like the dollar has bottomed. And I have a feeling it's going to start to rally.

And I think the markets could be in for quite a little bit of a stir. There was somebody speaking on the media today talking about how in the next 10 days, the way COVID is ramping up around the globe that it's going to start to reach some extreme critical levels in about 10 days. And that to me really kind of got me nervous because it gave me that gut feeling like when we saw COVID spiking.

For the first time, we had no idea what this, you know, disease, virus was. And so the dollar when all that happened last time, the dollar rallied about 12%. And now I look at the dollar, it's putting a bottoming formation. It looks primed and ready. I feel like if there is this wave of COVID, I think it's going to wreak havoc and fear. People are going to liquidate positions. We're going to see the dollar become the safe haven, as everyone sells everything they own. They're going to move to cash. They're going to go to the most stable currency that they believe is stable. And that still is the U.S. dollar I think. And we're going to see it rally. So, I'm looking at higher prices for the dollar over the next one to two months.

Craig: Kind of similar to what happened in late February, early March. Now, does that concern you? Because that wasn't a real good time for any assets, including gold?

Chris: Yeah, I'm not feeling the greatest about gold and silver short term. I think they're going to get pulled down. Unfortunately, when we have fear in the market, in the stock market, and we see selling almost every time we've seen it over the last couple of months, gold, silver, and miners have pulled down just as much if not more than the stock index.

Now, as soon as that panic selling leaves the market by midday, those commodities in the miners actually rebound very well. They are seen as kind of like a defensive safe-haven play, but they are not immune to panic selling. And that's what I'm worried we're going to see looking forward here. In the next month or so, we could have another wave of panic selling, and it could prematurely or kind of pull the metals and miners down short term. I think it will be an opportunity for the metals and miners, but I do think they could be under some pressure that you've got to be aware of.

Craig: Okay. Let's move on to question number two. It's kind of a two-pronged question. One, it seems, to this person and obviously to just about everybody, that COMEX Gold and COMEX Silver prices are very closely correlated, even though they're really not the same type of metal, right? I mean, you've got a monetary metal and an industrial metal, but yet they move very close now, almost like a 99% correlation. So, that's part number one. Part number two is then in forecasting PM prices, do you ever...or do you simply take into account the gold/silver ratio as part of where you think things are going?

Chris: I look at gold mostly as an insurance plan. I don't really compare the COMEX price with the futures contract. I mean, they track so closely. I don't really even really think about it. I just follow gold futures because that's what's going to be moving the ETFs, and the other plays in my mind most of the time. So, that's what I think of between those two prices, just I stick with the futures because that's what's traded, and it directly affects more or less than GLD ETF, which is one of the ones that we trade. In terms of...what was the second question there?

Craig: About the gold/silver ratio, does that factor in much?

Chris: Yeah, I do look at it. I don't factor it into my trades. It doesn't really give me any insight into what to trade, like when to trade. Obviously, I have to wait for price to break out. If gold breaks out first, which it did in a bull market last year, I mean, you got to take the leader, right. So, gold broke out over a year ago, well over a year ago. Silver didn't break out till just really only a few months ago, along with gold miners.

So, you really do have to follow the money. But obviously, when silver breaks out, especially with our gold/silver ratio the way it was, gold...or silver really need to rally to catch up, or gold had to decline. But I didn't really see that happening. So, when silver breaks out, that's definitely one you want to get on because it's like a little silver rocket ship. And of course, when it did break, I mean, we saw a huge short covering and the price just ripped to the upside.

So, it's nice to watch it and get an idea if silver is way undervalued because when it does have a breakout, you definitely want to maybe move some money from gold, or even potentially miners over to silver because it could have that explosive move. And silver likes to move that way. It's dormant, tough to time, but then when it breaks out, it just runs and runs and runs, and you got to be on it like really quick.

Craig: Yeah, yeah, good point. Okay, question number three gets to cryptocurrencies. What about Bitcoin? And can technical analysis be helpful in evaluating cryptocurrencies?

Chris: So, I followed Bitcoin a little bit. I am not big into cryptos. I mean, I can't really speak on it because I only own a little bit just because I wanted to own a little bit. But I don't really follow it and trade it. I do have it on my chart. I do talk about it occasionally with subscribers. If we do break above the high from back in August, I think we're going right back up to about $14,000 very quickly. But overall, technicals on it, they work. But Bitcoin moves in really awkward ways, a lot like natural gas and silver actually, where it just pops and gaps and moves like instantly.

And if you're not already in the position, you're pretty much paying a huge premium to chase it. And it's all over the place. I'm not a big fan of it because of that, and it just carries a lot more risk. But I mean, looking at Bitcoin as potentially a long term investment, I think you need to own some. That's why I bought some. I'm just gonna own it, in case, for some reason it goes like absolutely nuts again, and we see $20,000 or we see even higher. But it's not my thing. I don't really consider owning very much of it at all. Just interesting to have some and hope it goes extremely high someday

Craig: Right. That's about how I feel, too. Okay, question number four, Chris. What do you think is ahead for the mining shares and are the GDX and the GDXJ good proxies for technical analysis purposes?

Chris: Yeah, I like them. I like them a lot. I think GDX, GDXJ... I mean Sprott has got its ETF miners as well, which I talked with Rick Rule about. And I really like the way how Sprott actually does their miner ETFs, where I think GDXJ owns a whole bunch of GDX. I mean, you're really just...they're almost the same to some extent, whereas the Sprott one, they actually go out and spread the money out between all kinds of new companies that are potential takeovers. They're not just going out and buying other ETFs.

So, all of them more or less move the same. In general, when the precious metals sector is up, they're all up. I like all three of them. They're very tradable. You can use technical analysis on them. They all have a massive bull flag right now, which points to much higher prices. If they get traction and breakout here, which they're on the verge of starting another run, the GDXJ actually has the upside potential for a maximum run of about 62% to the upside.

Now, it would take a pretty good miracle for that to happen. If COVID hits, they're going to get pulled down with the panic selling. But say after the COVID hits or say it doesn't hit, I think they're going to become a leader. They're actually one of the best looking sectors out of all the sectors I'm following right now, that point to the next biggest moving kind of area. So, I really like them. But we really need to see GDXJ get more or less over $60 a share. And then I think it could be off to the races and it will have started a new run.

But it's not there yet. I wouldn't jump the gun because it is somewhat in a downtrend. It's making lower highs, lower lows, and it's starting to sell off a little bit here. So, for all we know, it could still continue to go lower before it breaks out. So, you got to wait. And when it does break, I think it's something to jump on.

Craig: All right, my friend, we are more than halfway done. So, question number five gets back to technical analysis again. I mean, here just now we were talking about, you know, catching trend changes, you know, trying to find a bottom, that sort of thing. What is your favorite technical indicator in spotting a change in trend? Could that be a moving average, you know, MACD line, something like that?

Chris: Yeah, it's kind of a combination. Like, I like to use moving averages. I find the 20-day... It depends on the time frame you want to trade. So, when I look at a chart, I usually put the 5-day moving average on, and I put the 20-day. And if price is above the 5-day and the 20-day moving average is sloping up, typically, I'm looking to buy stuff when intraday, when it hits the 5-day moving average.

A lot of times when you're in a strong trend, price always stays above that five-day moving average. So, those are short term buying points. If price gets below the 5-day and the 20-day is moving lower, every time it bounces up to the 5-day moving average, it's a good point to exit your position or get into a net short position, for example.

Okay, and then I also like Bollinger Bands. So, you take those moving averages, and I like Bollinger Bands. More or less we had a really simple setup yesterday where the S&P 500 sold down below an extreme Bollinger Band to the downside intraday, and it signaled, "Hey, we've got a one to three-day rally that should trigger." And so for example, I actually bought an option yesterday morning, I sold it about an hour and a half ago for a quick 55% gain, but it's simply because price was trending up. We had oversold condition in the market, and then today, it bounced up the S&P 500 and got right to the 5-day moving average, and then I closed out the position. And since then it's been pulling back a little bit.

So, it's great for short term trading, great for swing trading. You want to buy at the five. You want to buy at the 20-day. And, you know, if you can throw Bollinger Bands on there with a, you know, 1.5 kind of standard deviation as kind of the extreme, if it goes to one of those extremes, you want to pull money off. If it hits the upper band, you can redeploy when it comes back down and hits the lower band. Very basic strategy, but it will really help you stay on the right side of the market and buy at a discount, sell when it's a little overvalued. So, I really like those. Very simple, and I have it on every chart.

Craig: Is there something from a trend change perspective, though? Do you look at like RSI, you know, if something gets below 30? I mean, is there a favorite that you like there?

Chris: Not so much. I like to look at price action. So typically, I'll look back on the chart and I'll say, "Okay, if it breaks a previous high in the chart..." I usually want it to break two previous highs. And they need to be like kind of standout highs. It can't just be an intraday move. It's got to be two previous standout highs. And once it's broken two previous highs, then I know, okay, it's cleared one as resistance. Now, it's cleared a second one. So, it obviously has momentum.

And then I look for a pause and a pullback. It's actually what GDXJ is doing right now. GDXJ and the 30-minute chart, looking back about a month, it has rallied up. The trend has more or less turned up. And yesterday and early this morning, it actually dipped into an oversold territory. And this is a...potentially if it gets traction, it's going to start to run and break out over the next couple of days. But it hasn't broken above the previous daily chart high, which is around $60. And that to me is a really important line in the sand. If it can close and hold above $60 a share that'll be a really good opportunity I think to the upside.

So, I don't really use the stochastics or anything like that too much, or RSI. I mean, a lot of people see those differently. So, for example, if the RSI gets above, say 70, or 80, most people think the market is overbought. The way I've always seen RSI is once it gets above 70 or 80, in that upper zone, to me that's like the power zone. It's leading the way. It's a leader. It has lots of momentum. You want to jump on it and ride it higher.

And same when it's in the lower band, you get the biggest drops when it's actually in the lower band. And this is where a lot of people come into major problems is they sell when it's in the upper band, and then it keeps on going without them, or they buy when it's oversold, and it just keeps falling and falling and falling. And so I look at it very differently that way. And it makes a huge difference when you flip your point of view on it, and actually buy into strength, and sell into the weakness.

Craig: Yeah. All right. Well, just two questions to go. And you may have perhaps given us a clue on this sixth question with your previous answer. But right now here on October 20th, what market or sectors look most attractive to you as we speak?

Chris: All right. So, the gold miners look the most exciting. They haven't broke yet but they look primed and ready for a big, big move. And this to me feels like the time where gold miners could really take the lead and shine going into the holiday season. It just...everything feels like it. It feels like we're in that type of economic condition. The time and the stock market cycle. I mean, they have done very well this year. They've taken a breather. Tech has taken the lead in other things, but I think they're about to run.

So, I really like the gold miners. The other ones are the solar clean energy like TAN, T-A-N is the ETF. I mean, it's up over 240% from the March lows. The clean solar or the clean energy ETF, which is...another one, PBW, is up over 200. They both have bull flags. They both still look really strong. And they just keep moving up like every day. Even when the stock market is down, these things are still closing up 1% or 2% each day. The money flowing into the clean energy is huge.

The weird thing is the flip side of that story is XLE, the energy, and like the oil holders, I mean, they're the worst performing sectors for the year. It's funny how clean energy is the best sector, dirty energy is the worst. It's pretty interesting. So, I like the TAN. The other one that is kind of a sleeper I think is the utility sector, XLU. It's really come to life in the last month. It's kind of leading the way. It's got a really nice bull flag a lot like the TAN ETF. It looks primed and ready for another run.

And the last time we saw this sector do this was in January. We saw a big run, a pause, and then another run. And then we saw the stock market crash. And utilities to me is the last kind of...it's like the canary in the mine. When utilities have a really strong rally and outperform like the NASDAQ and the S&P 500, you've got to be aware that big money is getting defensive. And there's probably going to be some bad news just around the corner.

And so we've already seen the first rally in utilities. So, this falls in line with my thinking that holy, we could be coming into this COVID, you know, 10, 20-day window where it just spikes and the markets could start to roll over in a couple of weeks. The dollar could rally. Everything pulls back. I mean, it'll be another financial reset. So, I'm preparing and mentally preparing for crazy volatility, and to liquidate and to kind of step aside or potentially profit from a drop.

But I'm not betting against anything yet. I'm still long in the stock market, and we're looking to get long in miners. And so we're following price. We're not going to try to predict and pick tops yet. We're just going to follow the price until proven wrong, and then we're gonna flip direction.

Craig: All right, my friend, one last question. And this gets right to the heart of the matter, I guess with gold. What is your 2021 gold price target if you have one? And does the outcome of the U.S. election factor into that forecast?

Chris: 2021. I think metals could potentially actually struggle for the next six, eight months I believe...I think they're gonna have a run. I think we're gonna have a year-end run in metals and miners. But after that, I think they're going to be under pressure. I think the mega super kind of cycle bull market in metals and miners, is late next year in 2021. I think that's when it's really going to start.

So, I think we'll be lucky if we see $2,600, $2,700 on gold next year. But I think after that, like 2022 and beyond, I think that's where we really start to pick up speed, that gold becomes more of a global safe haven, because I think bonds are a major problem. Now, people...I think that 30, 38-year bull market in bonds is coming to an end. And people are going to be wondering where to put their money. And there's going to be this shift I think from potentially bond money starting to move into physical assets, which would be huge.

So, it's going to be a real wild card. But I still think we're going higher this year for metals, that it's going to be bumpy along the way. But next year, I think we're gonna be higher as well. And then beyond that longer-term, I mean, we're looking at much higher prices.

Craig: Sounds good to me. I would imagine it sounds good to most everybody listening, too. Chris, it's been fascinating, and I think very helpful for everyone who has taken the time to listen. Again, we've been speaking with Christopher Vermeulen, who is the Chief Market Strategist at thetechnicaltraders.com. And before we go, I want to remind everybody to be sure to stop by sprottmoney.com on your way out.

Sprott Money should be one of your first choices every single time you're out looking for physical precious metal, or a place to store them. Again, check us out, sprottmoney.com, or just call us at 888-861-0775. Chris, thank you so much for your time. It's been a terrific opportunity to visit with you and get these updates.

Chris: Hey, thanks, Craig. Always a pleasure.

Craig: And from all of us at Sprott Money News and sprottmoney.com, thank you for listening. We'll talk to you again in November.

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About the Author

Our Ask The Expert interviewer Craig Hemke began his career in financial services in 1990 but retired in 2008 to focus on family and entrepreneurial opportunities.

Since 2010, he has been the editor and publisher of the TF Metals Report found at TFMetalsReport.com, an online community for precious metal investors.

*The author is not affiliated with, endorsed or sponsored by Sprott Money Ltd. The views and opinions expressed in this material are those of the author or guest speaker, are subject to change and may not necessarily reflect the opinions of Sprott Money Ltd. Sprott Money does not guarantee the accuracy, completeness, timeliness and reliability of the information or any results from its use.

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