Growth stocks will make a quick comeback before crashing again - Chris Vermeuelen
(Kitco News) - Although Cathie Wood's ARKK ETF is down 52 percent year-to-date, it had a brief rally over the past week, rising 1.8 percent. Chris Vermeulen, Chief Market Strategist and Founder of TheTechnicalTraders.com, said that he is taking advantage of this "complacency rally" to buy growth stocks and sell them quickly, making a profit.
According to Vermeulen, markets experience bullish periods of growth, followed by drops to a temporary plateau. At this plateau, a 'complacency rally' may take place, in which investors falsely believe that the market has recovered. They become bullish and buy stocks, without worrying about fundamentals. This complacency stage is followed by a deep market crash.
"I think we are just about to start this complacency rally in stocks," said Vermeulen. "This is a great opportunity for potential trades that could last several weeks or several months, and growth stocks perform well during this. Now it might be the last chance to take advantage of them before we roll over… We're going to enter a much bigger bear market."
Vermeuelen spoke with David Lin, Anchor and Producer at Kitco News.
At present, Vermeulen is eyeing growth sectors such as technology. He used examples, such as the ARKK and TAN ETFs, to demonstrate his investment technique. TAN tracks solar energy companies and is currently trading near $73.
"I think we could really see TAN take off in terms of upside potential," he said. "We can quickly gauge where that is using Fibonacci extension, and that brings us up to $89… That is about a 23 percent rally for TAN."
Vermeuelen also mentioned that he had made a quick profit through trades in ARKK.
"We got into ARKK, we had a buy signal," he recounted. "We actually hit our target on the first day… and now [the stock is] struggling. We've seen this happen with a bunch of growth sectors, where they had a quick pop and then they fizzled out, rolled over, and died."
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Vermeulen takes positions in the market in terms of volatility. His ranking, or "position hierarchy," starts with stocks, and moves down to short-term Treasury bills.
He explained, with reference to the COVID crash, that "when we got this sell signal in the stock market, we looked down for the next asset class, which is TLT [long-term Treasury bonds]… we moved in and caught a beautiful 20 percent move in TLT, and then we had our trailing stop… and then we moved to cash and just earned interest in the bank and the brokerage account, until we get a new buy signal in the stock market, and then we moved back into stocks."
"Either we move to high-growth sectors, or we can navigate the very defensive, conservative way through bonds, currencies, and then cash," he said.
To find out Vermeuelen's thoughts on gold, and how Fed rate hikes will affect it, watch the above video.
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