Vermeulen argues that the tech sector is experiencing a major selloff driven by institutional distribution, with Goldman Sachs reporting record tech selling from hedge funds in October, and warns that the AI spending boom may be unwinding as companies like Google spend heavily on AI while damaging their core search revenue. He points to technical indicators showing the semiconductor on-balance volume broke down after a rounding top formation and notes that Intel dropped 30% in one day following a 20% drop the day before, bringing its total decline to roughly 50% in weeks. Vermeulen concludes that while the Nasdaq remains in a technical bull market and could rally to 35,000, investors are rotating into dividend stocks, utilities, and consumer staples for safety, and he expects a capitulation washout low early next week after a sharp gap down on Monday, though he will not re-enter until a confirmed new uptrend emerges.
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Record institutional selling in tech: Vermeulen reports that Goldman Sachs documented the most tech selling from hedge funds ever seen in October. The on-balance volume indicator for semiconductors (SMH) has formed a rounding top and broken down, signaling huge institutional distribution, and he believes insider money has been dumping shares into the public for months to lighten their positions.
AI spending hurting earnings: Vermeulen explains that Google is one of the top AI spenders but that spending is killing their search revenue, which caused the stock to drop 12%. He compares the AI boom to the internet bubble, noting that while transformative, AI has not yet turned into massive profits relative to capital expenditures, and investors are now punishing companies that miss earnings by double digits rather than the typical 3% to 5%.
Rotation into defensive sectors: Vermeulen observes that money is not leaving the stock market entirely but rotating from tech into dividend stocks, utilities, consumer staples, healthcare, and real estate because financial advisors and hedge funds cannot go to cash and must stay invested. He notes that dividend stocks are pushing higher even as the Nasdaq dropped 10% from its highs, and his panic indicator has not spiked because equal buying is occurring in other sectors.
Gold breaking critical support: Vermeulen states that gold has cleanly broken below the 4,000 level after many investors loaded up on miners at that price, expecting a bottom. He believes gold is now in a bear market and projects a decline to 3,100 or 3,200, another 20% down, due to margin calls, position unwinding, and the likelihood that interest rates and bond yields will remain elevated as Middle East tensions push oil higher and reignite inflation concerns.
Expecting Monday capitulation washout: Vermeulen predicts the market will gap sharply lower on Monday as traders around the world who could not exit positions on Friday sell in panic, potentially creating a capitulation washout low. He notes the Nasdaq has pulled back about 10% from highs, crossing the 8% threshold where financial advisors report investors start to panic, and he believes margin calls are forcing liquidation as many accounts use two times leverage and are down 20% or more.
