Tech selloff sends money into dividend stocks as Vermeulen waits for an uptrend

Money leaving technology stocks is moving into dividend shares, suggesting a defensive rotation within equities rather than a broad exit from the stock market. Chris Vermeulen said a short-term rebound was possible, but his strategy required evidence of a new uptrend before returning.

In an October 30 interview with David Lin, Vermeulen, chief market strategist at TheTechnicalTraders.com, said technology and semiconductor stocks were showing signs of heavy selling. He said he was staying on the sidelines until prices showed signs of stabilizing.

Vermeulen pointed to trading volume and on-balance volume, or OBV, in the semiconductor ETF SMH. The indicator, which tracks volume associated with rising and falling prices, had formed a rounded top over recent months before breaking down, he said. A subsequent recovery merely retested the breakdown level, a pattern he interpreted as institutional distribution that left the sector vulnerable to further selling.

Dividend stocks were rising as technology shares fell, illustrating where some of that money was going, he said. Vermeulen argued that many financial advisers and hedge funds operate under mandates that require them to remain invested. They were therefore shifting from technology into dividend stocks they considered less volatile and more stable.

The Nasdaq's roughly 10% retreat from its highs was also intensifying investor anxiety and pressure to reduce leverage, he said. Drawing on his experience with financial advisers, Vermeulen said clients often begin to panic after declines of about 8%. A 10% market decline could translate into a roughly 20% loss with twice the exposure, and he suspected margin calls and forced liquidation were adding to the selling.

He also linked declines in gold and smaller stocks to that liquidation pressure. With fear elevated and the market approaching oversold conditions, Vermeulen said a rebound could occur early the following week. That possibility did not mean he was preparing to buy: “We don't catch falling knives,” he said.

His conditions for re-entry were a bottom, stabilizing prices and the start of a new uptrend. Some pullbacks deepen unexpectedly or take months or years to recover, he said, explaining why a lower price alone would not prompt a purchase. He was also avoiding short positions because he still regarded the broader technical trend as bullish.

Vermeulen said the larger chart structures for the Nasdaq and semiconductors remained strong, leaving open the possibility that the selloff reflected a clearing of leveraged positions. His emphasis, however, remained on confirmation: a constructive longer-term pattern was insufficient without evidence that prices had firmed and an uptrend had begun.