Stock Market Dips as Gold Nears Record Highs | Chris Vermeulen

Craig: Hello again from Sprott Money and sprottmoney.com. It's now the month of August, and in the first of your series of great information from Sprott Money, we always kick off the month with your "Precious Metals Projections," some chart review, some look at some other markets. I am your host, Craig Hemke, and joining us as usual to review all those charts is Chris Vermeulen of thetechnicaltraders.com. Chris, always good to see you, my friend.

Chris: Same, Craig. Always a pleasure to chat, yep.

Craig: As I was saying, again, there's gonna be great content from Sprott Money all month, and every month. A lot of great stuff back in July, and we're just now kicking off the month of August. Go to sprottmoney.com so you don't miss anything, but also, while you're there, check out the great deals right now. Sprott Money's got a sale on some First Majestic bars. Help out Keith and his company, and help out yourself with some physical silver. Never a bad time to add to your stack. Five-ounce, 10-ounce, kilo bars from First Majestic, and any order over 500 bucks, as always, comes with free shipping and free insurance. So, go to sprottmoney.com, or call them, 888-861-0775.

Okay, Chris. Let's start, as we record this, it's here, August the 6th. You know, different story than maybe if we were recording this last week, as we had this move by the Bank of Japan to just barely come off of their negative and zero interest rate policy, and that has roiled the forex markets, sparked an unwind of that Yen carry trade, and some real bloodbaths on Monday, in the Japanese, Korean markets. It trickled around the world. So, as we begin this month of August, we don't know what's coming next. Maybe that's over, maybe it's not. But in your mind, just looking at the data, you have a thing you call "best asset now." What, right now, is the best asset?

Chris: Hey, yeah. You know what? It's one of the most boring assets, that a lot of people don't see it as a position or as a trade or anything like that. But it is one of the most powerful positions you can be in when there is no clear direction in the market, and that's BIL. This is literally, like, sitting in a cash position. It's holding the one to three-month T-bill, and there's no downside risk. You just earn daily interest. It keeps going up. It's a weird-looking chart, because every day you hold it, you're getting daily interest paid out, but if you hold it past the end of the month, all of that interest gets paid out with this purple value in the bottom, which is a dividend payment, which is also paid out, or taxed at a lower tax bracket. So, when there is no clear direction in the market, the long-term trend is still up in the markets, the short-term trend is still down. We have very mixed signals, and we've got crazy money flows. We got Japan doing stuff. We got technology falling out of bed, pretty much everything falling and crashing. So, when things don't make sense, you can just step on the sidelines, collect interest. And while the markets have been falling for the past two weeks, we've been sitting in BIL, just watching the markets go down, and watching our account keep going up. And it is a pretty dull, boring position when you look at it. It's just the same thing, month after month, but it sure beats holding something like the NASDAQ, that has completely collapsed and sold off. And same with the S&P 500, and pretty much everything else, actually, in terms of what's been going down.

So, when we look at these markets, especially the S&P 500, there is no clear direction. We got a lot of volatility, huge gaps to the downside, big rallies and pops and drops happening right now, massive volume. As you saw, Craig, probably, the last couple days, we saw the VIX up 176% in pre-market yesterday morning, or not yesterday morning, but I guess it was on August 5th or 4th there, huge spike up. And that is, like, indicative of a washout low, a short-term oversold condition. We saw volume flows on the New York Stock Exchange spike over 67, which is a ratio that I follow. So, there's 67 shares hitting the bid, people just hitting the market order, get me out, get me out, to every one person buying on the ask. And that ratio of 63, to put it in perspective, anything over 3 is panic. So, 63, which doesn't happen very often, very rare, is definitely a level that people were running for the fences. And usually that's the sign, usually a market bottom gets put in, when there's big panic like that.

Craig: Well, like you said, there's nothing wrong with being in cash from time to time. It's a good reminder for people that that is always an option. And the math is the math, man. You go down 20%, you gotta go back up 25%...

Chris: Yeah.

Craig: ...just to get back to where you started. So, there's nothing wrong with being defensive from time to time. You know, I'd refer [inaudible 00:04:53] back to our "Precious Metals Projection" of last month, in the month of July. You can find that right on the Sprott home page, Sprott Money home page. Because you mentioned something that caught my ear back then. And that was this kind of, I don't wanna call it divergence, but a move away from the big cap, the Mag Seven, all of a sudden, the Russell 2000 was looking better at the beginning of July. And you said, you know, that's not necessarily a good sign.

Chris: Yeah.

Craig: Now here we are. Can you follow up on that?

Chris: Yeah. So, you and I were talking, I think it was summer, just right in these couple of days, right where it popped, right up here.

Craig: Right.

Chris: And what's interesting is we saw the Russell 2000 flatlining, and suddenly, money started to flow. We had huge sell-offs in the S&P 500 and the NASDAQ because of money flowing out of the Magnificent Seven. People were then suddenly going, okay, well, if those are topping, I wanna move to the next aggressive kind of growth type of stocks, which are generally seen as the Russell 2000, small cap stocks, and everybody piled into the Russell 2000. And what's really interesting, and you and I talked about this last month, which was, we saw this happen back in 2021. We saw the Russell 2000 put in this topping phase. And then suddenly everybody, for some reason, got all bullish, and they piled into the Russell 2000, which was very short-lived. And then we went into a year-long bear market phase, and the market sold off significantly.

And so, we've seen that again, right where we are right now, that same scenario. And what's really interesting is if we were to just go way back in time, back to 2008, you can see similar type of price action, in terms of, the Russell 2000 traded sideways, just like what it's doing right now, and then suddenly, it had a big pop, and everybody kind of moved into small caps for some big flush-out session, and then suddenly, we went into that bear market phase. So, this is just telling us that people are, were becoming very bullish, and they were simply rotating out of the large caps and saying, "Okay, well, I think there might be done. I'm gonna move to another pocket in the stock market that has potential." So, it's kind of interesting how we're seeing this play out. And what really coupled this, and it happened between our last talk, Craig, and right now, is the utility market. So, if I was to show you the divergence here... Let me just throw in the SPY. If we look at the SPY, and look at the...yeah, SPY and utilities, and we just zoom into this price action, this is where there's this huge divergence, where the, we saw utilities rally about 6% and change. From the time the stock market topped and sold down, it moved down dramatically. There was about a 10% or 12% spread. And when the stock market is falling, and utilities have a huge rally, 6%, 7% in utilities, in that short period, is a very quick rally, when we have this divergence, we tend to see the stock market fall off a cliff.

And we ended up seeing that back...back over here, in 2021, we saw utilities do exceptionally well just before the big crash. They outperformed the stock market. The stock market pretty much flatlined for almost a month, while utilities just kept ripping higher and higher. And we had this similar percentage divergence, and then we went into a big crash. So, the fact that everybody piled into the Russell 2000, we see divergence on utilities and the equities market, and on top of that, gold was hitting new all-time highs, just, like, four or five days ago, beginning of August here... So, all those things are telling us there's trouble to be had. And then, of course, the market fell out of bed with Japan and on all that stuff, and a huge, huge drop in equities across the board, and most assets, really.

Craig: Yeah. Well, let's keep a focus on equity markets too. And again, the U.S. markets is just kind of a proxy for equities in general. We don't know what's gonna happen next. I mean, you and I are recording this here on Tuesday the 6th. All of this action took place Sunday night, into Monday. We're getting a typical bounce here on Tuesday. At least to me, it's typical. You know, everybody's like, "Okay, whew. Maybe that's over." My concern, having followed this stuff for 30 some-odd years, is what happens if we go back down later this week, and make lower lows versus Monday? What happens then? Now, it doesn't necessarily have to happen. That's for sure.

Chris: It's a high probability, though.

Craig: Well, yeah. And then, everybody like, "Oh, god. I bought the dip," and, you know, and out they go. And that obviously has then impacts on a safe-haven trade. Maybe the bond market catches a bid. Maybe the dollar catches a bid. That all trickles down to what the algos do with gold futures. So, we wanna keep a focus here on the equity market, since we're in such a volatile period. What levels, be it the QQQ as you have there, the NASDAQ, S&P 500, SPY, what are some levels that you think people should watch as we get later in this week and early next?

Chris: Yeah. So, we have a couple interesting things playing out. So, because the stock market is really being driven by the Magnificent Seven, which the QQQ is fully loaded with, I've been looking kind of at the QQQ. So, a couple of days ago, as the market was set to have this huge gap open, I was telling subscribers before the opening bell, I said, listen, the NASDAQ has finally... You know, the previous session, we talked about the NASDAQ still has more downside. It still has about a 5% or so downside move. And using Fibonacci extension, which is how we got that target, I was saying, okay, I think the stock market will bottom when the NASDAQ hits this 100% measured move. And what's really interesting, and I was talking about that just the day before, and the market has a great way of finding a way to create a bridge, and gap to that level, so you can't take advantage of the drop. And then it opened right at that measured move. And I was telling everybody in pre-market, I'm like, okay, this is a massive gap down, the VIX is through the roof, there's panic selling, it's blood in the streets, people are buying put options, left, right and center, betting on lower pricing. The NASDAQ is actually gonna open at its 100% measured move, and it's a gap, gaps get filled. We're probably gonna see this rip higher and fill that gap. And more or less, as of today, since you and I are talking, it actually, it's hard to see, but we've come right back up to this lower wick. We've actually filled this giant gap now, with these two days.

So, it was actually a very kind of predictable type of move. Most people got slaughtered, and got out at the bottom, and went short. And of course we were looking the opposite, saying, this is, like, the ultimate, like, day trade setup, or just a reactionary bounce of an extreme situation. And so, we had everything kind of come together for that. Now, on another thing, another scenario, this is a bit different type of analysis. Based on cycle analysis, multiple cycles, we have multiple cycles starting to come [inaudible 00:12:03] form a major cycle low. Very similar, almost identical to this one, and almost identical to this one. So, it's gonna be very interesting. This sell-off, though, is definitely more news-driven. It's more violent than these. These were more so just a market correction. These are, like, more, this is more of a crash. So, there's been damage done over the last month here. But as you mentioned, I think the VIX might have peaked out, but just because the VIX has peaked out doesn't mean the stock market can't go down and push some more lows. I think there's a lot of people bottom-picking, expecting this to go higher, but the feel in the underlying technicals, when we actually look at weekly charts, on to my weekly analysis, or strategy, everything is actually breaking down. The stock market trend is more or less broken behind the scenes. The long-term trend hasn't broken down yet, but it's showing that we could come down, as you mentioned, and see lower lows, and it'll shake those people out who tried to pick the bottom. And then it could put in a bottom over here and go higher for a bit, before rolling over.

So, it's gonna be a wild ride. And that's why, when you get into this type of price action, for some reason it lures people in. They wanna trade inverse ETFs. They wanna buy put options. They wanna get involved with these huge swings. The best thing to do, believe it or not, is to step away, and let this shake itself out, because every day swing is kind of a 50-50 bet here, and it's gonna be big. So, you either nail it or you get hammered with it. It's not worth it. It's a real gamble, right?

Craig: Like you said, you're sitting in BIL. What, did Warren Buffett have $250 billion in cash or something like [crosstalk 00:13:43]

Chris: Yeah, like, $270-something billion, and sold half of his Apple position.

Craig: Yeah.

Chris: I mean, there's a reason why people go to cash. I mean, it's not a bad position. You need good, fresh, dry gunpowder for when opportunities come, and it's nice to be able to have money to buy something. There's nothing worse than being drawn down, and all your positions are down 30%, 40%, 50%, and then suddenly, you're like, "Oh, this looks like this is the bottom." And then suddenly, you're like, "Well, I don't have any money, I'm margined out," and you can't reinvest, and you just ride your investments back up, and it takes you 5, 10 years to recoup, so...

Craig: Yeah. Yeah. Down 50%, you gotta go up 100%.

Chris: Oof. Painful.

Craig: Some of us in the mining sector know a little bit about how that works. So, anyway, I'll just leave that there. Let's look at the precious metals, specifically gold. To me, I look at the chart, I see, again, a range, a flag. I always laugh when people, "That's a triple top. Oh, no. It's a quadruple top." No, really, it's just in a price range. Hasn't really broken out yet. [inaudible 00:14:47] concern you about this chart? Anything that would make you optimistic?

Chris: I mean, I'm bullish on it. I think it's still a bullish price action. I think a lot of people are watching it, so there's a lot of price action shaking on the way up. I find what happens when a lot of people see a move, the market will kind of naturally wanna, like, it'll channel its way up. I call it a running correction. So, the market will come up, and then it sells off. And instead of forming, like, a bull flag pattern, Craig, actually, just, like, down over here, where it rallies up and then it kind of goes sideways and consolidates, I think when a lot of people are watching it, it does this running correction. So, it'll run up and sell down, to try and scare you out. It'll make a higher high and then sell down, try and scare you out, a higher high. And we keep seeing that. So, instead of correcting, usually a nice correction is a sideways downward movement, and then it'll continue to go higher. These running corrections are really good at confusing people. And I actually see them as a bullish sign. And when this running correction is done trying to chop and confuse everybody, it will continue to extend in the same direction as the previous run. So, it ran up, it's correcting as it's going higher, trying to shake people out. And then it'll pick up speed and shoot up to $2650, $2750. And I think one of the reasons why it's pulled back here in the last few days is we have had a lot of panic in the stock market, in the VIX. Money flows have been moving out. And nothing is really that protected when there's chaos and that level of panic selling. Even some of the best investments, like long-term investments for protection, like gold, will get pulled down just because there's liquidation going on.

And gold has held up exceptionally well. We're only, like, three days out from, like, all-time highs, and it's only pulled back a percent or three. So, I like gold. It's kind of the one to be in. I mentioned this last time you and I were talking. I think I said, if I had to pick one, it would be the dollar, or sorry, gold, because it's the lowest volatility, which means you have very little risk, a couple big, bad days in gold, you're gonna only be down a couple percent. And it has nice upside potential. The short-term trend's bullish, the long-term trend's bullish. You know, we're in an economic environment where people are naturally moving into it, and we've got all kinds of chaos happening. So, everything favors gold. I like it.

Craig: Yeah. Safe haven bids, geopolitics, all that stuff. Hit us once again. You did this back in about April or May, how the Fibonacci extensions on the daily chart, the weekly chart, even the monthly chart, all seem to align. It's amazing.

Chris: Yeah. So, let's go back out to the monthly chart here. And just to give everybody the quick kind of high-level view of where we are, because I think it's important, is, we started a new supercycle in gold, back in 2019. It's had a multi-year consolidation. And I think most of us who are fairly in tune with the market, we know there's some type of big correction coming. And so people are moving into gold, anticipating weakness and all that stuff. And I think gold's gonna go a little bit higher, and then eventually we're gonna see it correct with the stock market, for one last pullback. And where we are right now, this run-up, is very similar to what we saw in the past, just before the 2008 financial crisis. We had a multi-year pause after it started a new supercycle. And it ran up, because people see the economy slowing, they see financial things starting to break down, banks are gonna go bankrupt. And then we had the financial crash. And it pulled gold down with it. And then it rocketed higher for several years. So, that is what I'm expecting is going to happen to some extent here, that gold does have more upside, but I do think it'll get pulled back a bit with the recession. And then it's gonna be off to the races $3500, $5500, however far it's gonna go, but it's gonna be pretty substantial.

And to give you those Fibonacci targets, we can go here, we can grab this low, we can take this high, and this low, and this'll carry us forward to $2667. So, this is that next significant resistance area. We could even draw one from this level here, to here, using a more conservative level, which is, it's tagged that first level right now, so it is kind of finding a little bit of resistance, based on this shorter-term price chart. And then of course, if we were to kind of go to the big picture of where gold long-term wise, it goes right up here to $2700, $2800, $2750 area. So, the real key levels, if we use the full-size pictures, is $2660 to $2750, $2725. So, we still have more upside potential, right? We've got potentially another 10% or so for gold. And then expect it to have a 2008-type of crisis. It'll probably pull back and consolidate, but we want that. I believe that's gonna be, like, the last opportunity to pick up on physical metals. It'll be the time to get into the precious metal miners. So, I think it's pretty exciting. I mean, after this, who knows where it's gonna go. This will be $3000, $5000 mark. This is just where these charts are pointing to. We can't really project much further, other than these, until this next chart pattern unfolds. Then we can draw new lines, and get the next upside target.

Craig: I remember hitting a thousand dollars in about, oh, early March, something like that, late March, 2008. And then by October, down to 700. And then, what, two and a half years later, we're at $1900.

Chris: Yeah.

Craig: [crosstalk 00:20:30] $2700 back to $2000, and then two and a half times from there, we take it to about $5000. That would probably be okay with most people, even if we had to endure $2700 back to $2000 over a couple of months. So, we'll see.

Chris: I remember that, this whole run-up here. I mean, that was such an exciting time in the precious metals space. And once you get hooked in that, it's almost like picking a top or a bottom. If you've done it once, you make a killing. You're like, you just wanna stick with it. But obviously, assets go in and out of favor for, like, multiple years at a time, but I think we're gonna be close to another one of those, which is pretty exciting.

Craig: Yeah. Well, it's gonna be a very interesting month ahead, my friend. Again, as we sit here and record this, hard to say what's gonna happen tomorrow.

Chris: Yeah.

Craig: And this Yen carry trade, if that, again, continues forced liquidations of anything with a bid, and gold and silver trade 23 hours a day. And some of the real, the most significant damage back on Monday was when the U.S. markets weren't even open yet, but it had a bid, while trading was happening in Asia and Europe, and that's when it fell from basically $2500 to $2400. So, you just don't know intraday how things might go, but that's why I so much appreciate these long-term charts, because they give us all [crosstalk 00:21:49]

Chris: Yeah, for sure. And you mentioned before we started here, Craig, you were talking about, you know, we were talking about the economy, how things are slowing and all that stuff, and...

Craig: Yeah.

Chris: ...it's funny, because you look at the other metal, which, copper, as you mentioned, is kind of, like, an economic indicator. And, I mean, it's pulled down, like, 20% from these highs. And you and I have touched on this a few times, that it's in the upper end of its range. You know, it's been channeling up. But when copper goes down, it usually means we're going into some type of recession, the economy's gonna weaken. And, I mean, we're already seeing, like, Canada's in a recession. Over in Europe, there's recessions, like, all kinds of stuff. So, I think copper has topped out. And the big question is, how far is it gonna sell off? The last sell-off was huge, during the 2008 recession, and I believe we're going into another one. So, the question is, how low does copper go? Does it go to $3.00, $2.50, $2.00? Where will the washout low be? You know, that's a long ways down, but it's not that far when we hit chaos and things unwind, so...

Craig: Well, and that's worrisome for silver, because they have so much in common. In fact, you look at that chart of copper, it's 20% off its highs from mid-May. Well, now silver at $27 is about 20% off its highs too.

Chris: Yep.

Craig: So, if we look, again, you like to see some support in here, about where it is, and a quick bounce-back, because otherwise that does open the door to lower lows. Which, again, for us stackers, okay. I mean, we like to have it go up. It helps the mining shares go up and everything else. But if you have not yet prepared for all of this craziness that's coming in the next couple of years, lower prices can benefit you too.

Chris: Yeah, for sure. Yeah, I kind of want more damage. The more damage to gold and silver and miners for now, the better, I believe, because I wanna pick them up for pennies on the dollar.

Craig: We sound like masochists for pain, but there is some truth to that. Chris, thank you. Again, if you're trying to navigate these waters on your own, I'd sure encourage you to check out Chris's service. Because, again, that big drop, if you can avoid the big drops, it can certainly keep you ahead of the game when things bounce back. thetechnicaltraders.com is where you can find Chris's work. And of course you can always find all [inaudible 00:24:08] at sprottmoney.com as well. Great deals all the time. And they're always there to help. And you can help Sprott Money by liking or subscribing on whichever channel you've been watching this. That actually does help the algos notice, and cast a wider distribution net, which benefits everybody. So please give us a like or a subscribe on your way out. Chris, I, boy, I tell you what, by the time we speak again in early September, I don't know what's gonna be going on. It'll at least be football season here in the U.S. We'll have that going for us, but boy, it'll be fun to talk to you again in a month, and see where we are. Until then, thanks for all your help, and keep fighting the fight.

Chris: All right. Sounds good, Craig. All right, take care everybody. Bye-bye.

Craig: And from all of us at Sprott Money, sprottmoney.com, thanks for watching. Keep your eye on this channel, though. We'll have a lot more content coming for you as we go through August.