Chris Vermeulen, Chief Market Strategist at The Technical Traders, has warned that United States stocks may be nearing a major turning point that could result in a significant crash.
According to Vermeulen, while the S&P 500 and Nasdaq continue to set new highs, much of the momentum is being driven by the “Magnificent Seven” tech giants, which masks weakness across the broader market, he said in an interview with David Lin, published on August 25.
He pointed out that equal-weighted indices, small caps, and micro caps have failed to break into fresh highs, signs of what he describes as a “stage three topping phase.”
Historically, such conditions have often preceded corrections of more than 20%. Vermeulen also noted that seasonal patterns add to the risk, with late August through October frequently marked by sharp market declines.
Drawing parallels to 2024’s sudden sell-off, he suggested a repeat could be looming.
Additionally, the strategist warned that if current trends reverse, markets could shift into a “stage four” cycle, a financial reset that could trigger crashes of more than 50% in some indices.
“There’s a lot of headwind about to run into this market. While the trend is still upward, you should be aware that it may come to an end soon. If you’re in positions, you might have to exit them soon. Take a potential loss or start locking in gains, but overall, the broad market to me is in a stage three topping phase, where we could go into a bigger sell-off, and go into a stage four, a financial reset that could be a 50% plus crash in some of these indices, which kind of leads,” he said.
Possible AI bubble burst
He added that the surge in innovation, particularly around artificial intelligence, is temporarily masking underlying fragility. Once enthusiasm for AI fades, he expects the broader market to roll over sharply.
Interestingly, these concerns come as some market watchers warn that the AI boom could mirror the dot-com crash of 2000. OpenAI CEO Sam Altman has cautioned that the current frenzy of investment in artificial intelligence may result in significant financial losses for some investors.
He pointed to the gap between the hype surrounding AI and its actual profitability, urging caution as billions continue to pour into the sector.
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