When something goes straight up, it usually comes straight back down said Chris Vermeulen, chief market strategist at The Technical Traders, referring to bitcoin's recent parabolic move upwards. Gold sees upside to the $2,400 an ounce level in 2021 but faces risks of a possible stock market correction that could drag the metal down.
Chris Romulan chief market strategist@thetechnicaltraders.com is kicking off our 2021 coverage. Chris, you are my first interview for 2021. Thank you for being here in setting us up for the year. Yeah. Happy new year. Thanks for having me happy new year. How was trading for the first two days? Uh, it's been an exciting ride.
A stock's a big move down and we're seeing precious metals with this massive rally to the upside. It's it's everything really a trader wants, especially a precious metals trader and investor. So exciting times for sure. We're going to talk about the broad market, the economy, gold and Bitcoin, some of the biggest movers so far.
Of the year I had to rub my eyes this morning when I woke up and checked the prices, $32,000, Bitcoin, I, you know, people have been saying $20,000 is a resistance level. It's never going to come back. I've been seeing, I've been seeing posts like that. Anyway, we'll talk about it. 32,000. That's incredible. So let's start with the broad market.
Chris set us up for the year. What's your thesis? Right. So, uh, there's an interesting way to look at the markets. So January is always a very critical year for the stock market. It's kind of like the barometer to get a vibe on which direction the market's going to go. And so here, I've got a monthly chart of the S P 500 and just really roughly here, these orange boxes, uh, encapsulate the December range.
And so the next year, which is this year, if we were to look at. Forward to the most recent box when the trading this year and the S P 500 closes above that orange box or below it, it's going to signal a trend in a bias. And usually there's a very strong move we're looking at anywhere from, you know, 10, 15, 25% moves in the market when we break the December range.
And so. Right now we are trading in that December range. And until we break out of it, you gotta be really cautious. It's going to be probably a choppy market and we don't know which way it's going to break at this point. So that's kind of our, our barometer for the next big momentum move. When you look at 2019, it eventually took a couple months, broke to the upside.
Stock market rally 13%, uh, in 2020, it broke to the downside. It fell 25% from the following month to the, to the spike lows. So there's, and then when it broke to the upside later, uh, in 2020, we saw a 15% move. So these are very big moves for traders and investors. You want to be trading on the right side of the market, even if you're a precious metals holder, you pretty much want to still be in line with the broad market because it'll pull metals and miners up and down with it.
Okay. Yeah, that's a good point. People often talk about gold as being a hedge against the stock market. I don't necessarily agree with that definition because the definition of a hedge is something that moves the opposite direction, but very, very, very often they move in the same direction. Doesn't it?
Yeah, they, they're not, it's not a hedge. It's, it's more of a, an insurance plan on, you know, uh, things kind of really falling apart. But when the stock market sells off, we see metals go down in minors. That's just the way it pretty much is. Yeah. Especially the selloff we saw. In, uh, in March this year, now people have been, well, some people I've talked to have said that we might be headed towards another March, 2020 style sell off again in 2021.
That is, uh, you know, not great news for equities investors obviously were for any investor. Can you see that happening? Do you agree? Why do I think it's going to be a very volatile year? I think it's going to be a lot like last year we could see a 20, 25% correction, maybe more. Um, again, we're going to really focus on this December range.
See which way things go. But we are definitely in a sector driven market where hot sectors are doing most of the heavy lifting and it's constantly rotating around 2020 was an amazing year for sector trading. Trying to find the best assets to get into. And solar was a huge one. Um, energy sector was the worst performing, but it's actually clawing its way back.
Uh, and precious metals right now are starting to set up for another big move to the upside with leadership. So we really got to focus on rotation this year. It's not about probably the broad market. It's probably going to be a pretty choppy year. So you want to make sure you get into these leading sectors that just are like a helium balloon.
They just want to keep going up and up and up. Can you explain why we're going to see shopping desks? Because if you take a look at this S and P 500 graph that you're showing, let's take a look at it one more time. If you take a look, what happened this year in March? Yes. It went down 2035, 25, 30%, but then it climbed very quickly back up.
And that actually people have said that, well, the stock market doesn't correlate with the economic reality, but if you look at the earnings of some of these sector leaders that you were talking about, if you look at retail sales overall, so the United States. These numbers have climbed up dramatically, a V-shaped recovery in sales for a lot of sectors.
And so, you know, we're not seeing signs of this cracking anytime soon. What, so why, why, why would you yeah. Yeah. There's, there's no doubt. It seems. Um, you know, when you look at unemployment, everyone's got a mixed signal where we are in this economic cycle. People are saying we're in the risk of recession ever, you know, uh, and then other people are like, well, you know what?
We're sold out. A product products are just flying off the shelf, luxury products. You can't buy, everything is sold out. I mean, people are buying things hand over fist. Yes. There's a lot of unemployed, but, uh, businesses are still. Um, that are selling products that people need and want in order to stay home and, and survive.
COVID I mean, are doing exceptionally well stock market definitely doesn't reflect the overall economy. A lot of times it's, it's leading the market dramatically and that's probably why we've seen this big move. As people are expecting this COVID to kind of fade away eventually, and we're going to be bounced back to normal.
So that's why stocks are moving up. Uh, going forward, they're looking much more forward than where we are right now. Right. So if we were to see a sell off the stock market, What could be a trigger now we're still breaking. Yeah. Trigger. We'll be breaking the, the December lows. I mean, there's probably going to be news that comes with it.
There's probably, I mean, people were talking about this week that, you know, people are pricing in a Biden, um, kind of movement. And so they're selling off. And of course that is good for, for metals. People are into the metal sector. There's probably going to be some event. That sparks it, but I mean, eventually the stock market loses its momentum.
We're actually seeing a lot of market internals. Uh, the market strength actually reversed, and it might reverse this week in terms of, if you look at what utilities are doing in relation to the S P 500, you look at high yield bonds to treasury bonds, look at gold to building materials. You look at a whole bunch of different ratios and you blend them all together and you're like, wow.
Everything is actually showing signs that we're losing momentum. This market is about to pull back. So I think January is going to be choppy. I think we could end up closing below the December lows, but again, not going to jump in front of it. We're going to wait for confirmation because the, the underlying breadth of this market is eroding at this point.
So what are the sectors that you do? Like you've mentioned that certain sectors will outperform in 2021. Right. So the general rule, when you're trading hot sectors is you still need to trade in line with the stock market. If the market breaks down, you don't want to be pretty much in anything other than maybe long bonds for a window of time.
But, uh, when the market is favorable, uh, we, I like the Evie market, uh, which is the electrical vehicle market. Believe it or not clean energy is still leading the way. Uh, solar is, is top of the list. Um, and one interesting one is the OIH the oil's holder ETF. It was the bottom of the barrel in 2020, and it's clawed its way back to be near one of the top sectors it's picking up speed very quickly and energy.
Crude oil chart. They all look really bullish for another big extension higher. So I think the energy sector both clean and dirty, like the oil could actually be a very good play this year. People have talked about the clean energy sector, but how do you play that sector? What are the instruments you would use?
Yeah. So there's an ETF called a PB w it's a clean energy ETF. And then there's another one solar, um, sector, which is T a M the tan. And those are, those are kind of the two that I follow. I know there's a ton of ETFs based around both of those, but those are heavily traded and I liked those. Okay. Let's take a look at gold.
Now let's pull up a gold chart. Another commodity. Or an asset class that has a moved dramatically accepted the opposite direction of stocks. So if you take a look at what happened the last, just two weeks dramatic move upwards from people were losing hope a while ago, but now it's bounced back. Yeah, exactly.
People were definitely losing hope. You and I talked, actually, this is the monthly chart, but you and I talked as gold was free falling towards his 18, 10, 18 Mark. And there was panic that day when you and I were talking about this, I said, this is, this is what we want. We want. Panic. This pullback is actually a measured move down to this area.
It's very bullish that people are panicking at a major support level. And since then we've seen this huge move to the upside. This monthly chart really shows the 2011 highs. The multi-year base, how we broke out of it in 2019, we've had a rally, a pullback, another rally, and a pullback. And this is primed and ready if we were to squish this chart down crude or not crude down gold is primed and ready to go all the way up.
To potentially the $2,400 level from here. So there's a lot of explosive power built up in, in, in gold. And, uh, I really like the way things are setting up for this $2,400. Is that, is that expected, uh, this year or next year? How, what's the timeline on this? Based on this chart pattern, it would be, uh, definitely probably the first half of this year or mid, mid this year.
I would think that's just based on this pattern. Now, if for some reason, gold pulls back from where it is and consolidates in a much larger flag, that's going to delay things, but it's also going to build more power for when it does break out down the road. So at this point, we're looking at mid this year, 2,400 and gold.
You mentioned that the equities markets, that broad market could see a pullback as well. Was that, would that bring down gold? Like it did this year? It would. Yeah. And that, that would be the, the whole thing. So if the stock market does have a sharp correction, we're probably going to see gold, pull back, continue to flag sideways in this bullish pattern.
And then eventually when the conditions are good and it can overpower the selling pressure, we'll see gold really take off and start to extend to the upside. Common question I've been getting from people I know is when a good time is to get into goals. Should you be waiting for pullbacks or should you just buy now and hold because I, I guess.
Well, you're seeing applies to any asset class, right? It's going to pull back and then consolidate and move back up. But if you keep waiting for pullbacks, you're never going to get in. Right. It really depends. Depends on the type of, uh, trader or investor you are. If you're an investor, you should be buying these pullbacks like to 1800 when people are panicking and it's pulled back into a support level, like this 1800 level across the chart.
If you look across here, I mean, it was the high in 2012, we had a bunch of monthly highs. And then it traded through it two days. I mean, it is a prime candidate for it broke above to new highs and then it pulled back to support. I mean, it's a prime condition, so investors should be buying and holding gold longterm.
Uh, when you look at a short term trader, if we were to flip to the daily chart, it's a bit. Different of a view. If you hear is the March crash on the left. And then we had the rally, a consolidation, a huge rally, and now a bigger consolidation and prices. Just, just starting to break out from these highs of this pattern.
If you look here, Uh, this week, it just broke above this falling trend line. So it's a clean break, but we're still struggling with this high that we saw back in November, uh, in, in gold and gold miners are definitely lagging. If we look at silver and silver miners, it's a much more bullish and exciting picture than gold itself.
Yeah. I'm going to, I'm going to get a little philosophical now. Uh, so the, uh, the, uh, the notion that we should be holding gold long-term okay. I hear that. From basically everybody had talked to, can we pull up a longterm goal chart again, just take a look at, uh, the last 10 years going back to 2011. So the last time gold reached a high, Chris was 2011 and then it just kind of flat line for 10 years.
Not well, not 10, but like, you know, eight, nine years. Um, you know, th the, the notion that we should be holding it during that time, by the way, the S and P 500 outperformed gold. Uh, by a significant margin over the night, for sure. Over the, over that nine year period. So the notion that gold is a store of value over the long-term really the definition is inconsistent at best.
Isn't it? It is. I mean, if you actually want to, uh, really beat the market and do really well, you need to use technical analysis to block in these topping patterns. I mean, once you see these huge parabolic spikes in price starts to consolidate, whichever way it breaks from there is going to be a very big move.
At least the distance of this box. If we were to look at the price action where gold is right now, we've had this parabolic spike. We've had this pullback for all we know Gold's already put in a top. Nobody knows until it's done. Right. But we're in this big range right now that maybe, maybe it's over.
Maybe it's going to chop around here. Maybe it's going to break down and consolidate for several more years. We really don't know. Uh, the thing is a long-term chart is still pointing to higher prices at this point. Um, the falling currencies are going to help with this. Uh, I mean, we're in a major new, uh, commodity cycle, like a 15 year commodity cycle, and everyone has been into equities and homes and commodities are the most undervalued kind of asset class.
So there's a lot of things pointing to much higher prices, but we really do need to see which way gold breaks from this pattern. If it breaks to the upside, it's going to have, it's going to run to 2,400 very quickly. Okay. And gold miners. I know you follow gold miners. What do you think about that asset class?
Yeah, the gold miners, the gold Meyers are great. You can see here. This is the long-term monthly chart. They really broke out mid last year. They've pulled back to support. They're starting to move up. This is primed and ready for it to continue to go quite a bit higher. So I like gold miners. Um, Uh, they're, I think they're going to become a major leader here in the first half of, uh, 2021 and, uh, perform a lot of sectors.
And that's what we're seeing already. We saw a sell off on Monday in stocks and the precious metals sector has just rocketed higher. And that's usually the sign that the stock market's close to a more of a pullback. So I think, um, There's going to be some mixed signals going forward, but metals are the, are the spot to be, I think, in the next month or so.
All right. Now, finally, Bitcoin, I mentioned, we talk about Bitcoin $32,000 is the latest price I'm looking at right now. Everyone was expecting a pullback. Well, not everyone, but the people I've talked to have been expecting a pull back at the $20,000 level before climbing back up, that didn't happen. Are we just delaying that pullback?
Chris are we, are we, is that pullback going to be even more significant now that we're still shooting up? What do you think? Yeah. So when you you've got a basing pattern, like the bottom blue square on this, uh, this weekly chart, typically when you've done a multi-year based like this, or a big basing formation, typically you're going to see two to three times that.
On the rally to the upside. And so we're almost at two times out level 36,000 is pretty much the upside kind of target. Now, the more something as you just said, goes straight up, the more likely it's to come straight, back down very quickly. So while this is an exciting move, it's not a sustainable type of chart pattern and a it better enjoy it while you can and start ratcheting up your protective stops because when it does reverse.
It's going to knock your socks off. So you gotta be really cautious with something that goes straight up. It's pretty much a ball bouncing. Right. And what goes straight up comes right back down again. That's a, that's a very good analogy, Chris. Uh, finally, let's talk about your workshop now. You, you, you teach people how to trade, so you have one coming out, give us a teaser of, uh, we'll.
You'll be talking about. Sure. Yeah. On our website, I'm hosting a webinar each day, where in 60 minutes, I teach you how I trade the band strategy, which stands for best asset. Now it's a relative strength strategy. It's how to find the market leading sectors using ETFs into play. The biggest sectors throughout the year.
Uh, 2020 was a huge year for sector rotation. If you're in the right sectors, you made a lot of money. 2021 is going to be the same way. Uh, we've got new president, new tax laws, new policies COVID is still here, lifestyles and businesses. The, where they run are changing. So sectors are on this huge, massive tear, uh, other selling off huge or making big gains.
And those are what you want to be in because I think the stock market's going to be choppy. And I, and I teach this strategy and in 60 minutes, everything you need to know, um, known proprietary tools or anything. You, you walk away knowing. When to enter how to enter, how to manage the trades, take stops and targets, all that stuff.
It's a real crash course, uh, but really detailed. And, and you get a guide at the end, so you can, you know, uh, follow the guides in the steps to trading the strategy afterwards. So if I wash this for 60 minutes afterward, I'm going to be as good as you, you know, you'll be caught right up to me. All right.
Well, that sounds like a great deal, Chris. Thank you so much for being with us today. Happy start to the new year, happy trading and I'll catch up with you soon. Thanks, David. Always a pleasure. Thank you, Chris. Happy new year to all happy 2021. I'm David Lynn. Stay tuned for more. .