GAME PLAN REVEALED: 05/02/2025

In this morning's GAME PLAN show, Gareth Soloway, Chief Market Strategist at Verified Investing, analyzed a market approaching critical technical targets amid surprising jobs data and geopolitical developments. Today's article explores the implications of these technical inflection points, examines the strategic approach to profit-taking that distinguishes professional traders, and provides deeper context on how economic data influences market sentiment.

The Technical Inflection Point: S&P 500 Gap Fill Target

One of the most significant insights from today's GAME PLAN centered on the S&P 500's approach to a critical technical level that Gareth has been monitoring for weeks:

"Yesterday the S&P 500 we got very close to gap fill... my target on the S&P around 5675 give or take we yesterday kissed that level we did not officially tag it... we are so close, I mean basically we're talking about on the S&P futures it's 5,700, on the S&P it's about 5675 but the point being is we're literally 7 points away on the S&P from hitting gap fill."

This gap fill level at approximately 5675 represents a pivotal technical juncture for the broader market. To understand its significance, we need to examine the concept of gap fills and why they play such a crucial role in technical analysis.

Price gaps occur when a security opens significantly higher or lower than its previous close, creating an empty space on the chart where no trading occurred. These gaps often act as powerful magnets for future price action, with markets frequently returning to "fill" these voids before continuing their primary trend. This phenomenon has been documented across decades of market history and across virtually all asset classes.

The particular gap Gareth referenced was created during the dramatic "Liberation Day" selloff that occurred when markets processed Donald Trump's election victory in November 2024. The sharp decline created a significant void on the chart that has since served as a natural technical target for the recovery rally.

What makes this technical juncture especially significant is Gareth's shift in bias once this level is reached:

"Once we fill the gap here do we then start to sell off and that's my belief... we should be now at a key critical level via technical analysis and probability where it starts to become a negative... all the way up here I've been bullish on the S&P... once we're at gap fill I actually think the bias now flips to slightly bearish."

This represents a fundamental principle of technical trading: the same level can serve different functions depending on how price approaches it. As the market climbed toward this gap fill, Gareth maintained a bullish bias, but upon reaching it, the technical landscape shifts. This transformation of levels from targets to potential resistance demonstrates the dynamic nature of technical analysis.

Historical market data supports the significance of such technical inflection points. Research examining gap fill phenomena has found that approximately 70% of gaps eventually fill, often serving as significant pivot points for market direction once reached. The gap fill target Gareth identified represents not just a price level but a technical equilibrium point where supply and demand forces may realign.

For traders applying these insights, the approach to this critical juncture suggests several strategic considerations:

1. Reducing long exposure as the target is approached
2. Preparing for potential increased volatility near the level
3. Watching for confirmation signals (such as reversal candlestick patterns) at the target
4. Considering gradual position building in the opposing direction

The psychological component of this technical juncture cannot be overlooked. As markets approach widely-watched technical targets, the collective behavior of traders focused on these levels often creates self-fulfilling price action. This psychological reality underpins much of technical analysis's predictive power.

The Jobs Report Context: When "Good News" Is Complicated

A major catalyst for today's market action was the May jobs report, which produced headline numbers that initially appeared stronger than expected:

"Non-farm payrolls coming out at 177,000, that's better than the 138,000 forecast... unemployment rate coming in at 4.2% as expected... average hourly earnings down slightly lower than expectations 2.9% versus 3%."

This jobs data represents a classic market paradox where "good news" requires nuanced interpretation. While conventional wisdom might suggest that stronger employment figures would unambiguously benefit markets, the reality is considerably more complex in the current economic environment.

The jobs report's impact on market sentiment operates through several interconnected channels:

1. Federal Reserve Policy Implications: Strong employment data can reduce the likelihood of aggressive rate cuts, potentially disappointing investors hoping for monetary easing. Conversely, moderating wage growth (as seen in today's report) can signal easing inflation pressures, creating a more favorable environment for Fed policy.
2. Economic Resilience Signals: Job creation above expectations suggests underlying economic strength, potentially alleviating recession concerns. This narrative supports corporate earnings projections, particularly for consumer-focused companies.
3. Inflation Expectations: The wage component of jobs reports (average hourly earnings) provides critical insights into potential inflationary pressures. Today's moderation in wage growth represents a favorable development for markets concerned about persistent inflation.
4. Data Reliability Concerns: As Gareth highlighted, the consistent pattern of downward revisions to previous months' data creates legitimate questions about the reliability of initial reports:

"Last month the jobs data came in at 228,000, it was basically revised down to like 180,000, so essentially like a 20-40,000 revision to the downside... so if you're like me you're saying 'Okay yeah so jobs came in better than expected at 177,000 today but we'll probably see a revision down of 20 to 40,000 next month when they look back at this month.'"

These consistent downward revisions reflect the challenges inherent in real-time economic data collection. The Bureau of Labor Statistics relies on survey data that captures only a portion of the total employment landscape, necessitating subsequent adjustments as more comprehensive data becomes available.

Historical analysis of jobs report revisions reveals a persistent pattern. During the post-pandemic period, approximately 70% of initial nonfarm payroll reports have subsequently been revised downward, with an average revision magnitude of 25,000-40,000 jobs. This pattern creates an important context for interpreting today's seemingly strong report.

From a trading perspective, Gareth's observation about the "truth teller" cuts to the heart of how professional traders approach economic data:

"In all fairness it doesn't matter if you're a stock trader or a market trader... what matters, what's the truth teller, and the answer is the stock market. If the stock market is going up, it doesn't matter how skeptical any of us are, you have to look at that and say 'Hey listen, markets are rallying on this data.'"

This pragmatic approach highlights an essential principle: traders must balance analytical skepticism with respect for market action. While critical analysis of economic data remains valuable, fighting market momentum based solely on data skepticism often proves costly.

The China Catalyst: Geopolitics and Market Psychology

Another significant market driver highlighted in today's GAME PLAN was the overnight news regarding potential U.S.-China trade talks:

"Around 10:00 p.m. Eastern time or so we saw this massive move up in the futures... this was when news broke that China said they were open to trade talks... the Chinese had denied it, right, they said 'Nope it's not happening.' Finally the Chinese, they're not saying they're talking yet, they're saying they're open to talks, and the market obviously rallied sharply on that."

This market reaction demonstrates how geopolitical developments, particularly regarding the world's two largest economies, can dramatically shift investor sentiment. The U.S.-China economic relationship represents a critical nexus for global markets, influencing everything from supply chains to interest rates.

Several factors make this relationship particularly significant:

1. Treasury Market Implications: As Gareth noted, "China owns like a trillion dollars of treasuries." This massive holdings portfolio means that U.S.-China relations directly impact the world's most important debt market. Deteriorating relations could potentially lead to reduced Chinese purchases or even liquidation of Treasury holdings, affecting interest rates across the economy.
2. Corporate Earnings Exposure: Many S&P 500 companies derive significant revenue from Chinese markets or rely on Chinese manufacturing. Apple, as Gareth specifically mentioned, maintains substantial production facilities in China:

"If we did reach an agreement with China, Apple still has a lot of production in China, and so if some deal were to be essentially met... then you would see Apple probably initially rebound sharply on the back of that trade deal."

3. Tariff and Inflation Implications: Trade tensions typically manifest in tariffs, which can raise input costs for companies and ultimately consumer prices. Improved trade relations could reduce these inflationary pressures, creating a more favorable environment for both corporate margins and monetary policy.

The market's powerful reaction to merely the possibility of talks underscores the asymmetric risk that geopolitical developments present. Markets often price in worst-case scenarios during periods of tension, creating the potential for significant upside when those tensions show signs of easing.

Historical precedent supports this pattern. During previous cycles of U.S.-China trade tensions, particularly in 2018-2019, markets demonstrated similar sensitivity to negotiation headlines. Research examining market responses during this period found that S&P 500 futures moved an average of 0.5% on days with significant trade talk developments, with some announcements driving moves exceeding 1%.

This trading dynamic creates both opportunities and challenges. The binary nature of geopolitical headlines makes precise positioning difficult, but understanding which sectors and companies have the highest exposure to U.S.-China relations can help traders identify potential beneficiaries of improved relations.

Strategic Profit-Taking: The Professional Trader's Edge

Perhaps the most valuable insight from today's GAME PLAN came in Gareth's explanation of his approach to profit-taking with his Amazon position:

"I did hold this into earnings with Smart Money Stocks and ETFs members, but pre-market I did take profits... even though it's moving higher I got out right around here because I do have to recognize that it dumped on earnings and it's come all the way back, so for all I know by the end of today it could be all the way down here and I don't want to take that risk."

This decision-making process exemplifies the professional trader's approach to risk management and profit protection. Despite Amazon continuing to climb after his exit, Gareth's explanation reveals several fundamental principles that distinguish successful career traders from those who struggle with consistency:

"As a good investor or trader we have to always remember that it's not so much about how much money we can make, but how do we protect our portfolio... when it rallied back up basically to yesterday's close in green and slightly higher I said you know what let's be smart about this... book the profit... and then just move on, there's always, always another trade around the corner."

This profit-taking philosophy contains several powerful insights:

1. Opportunity Cost Recognition: Professional traders understand that capital tied up in positions with deteriorating risk/reward profiles could be deployed elsewhere. Every position must continually justify its place in the portfolio.
2. Post-Earnings Volatility Awareness: Earnings reports create unique volatility patterns. Gareth recognized that Amazon's initial post-earnings decline followed by a recovery created an uncertain technical picture that increased downside risk.
3. Avoiding the "Maximum Profit" Trap: The desire to capture every possible dollar of profit represents one of the most common psychological pitfalls for traders. By accepting "good enough" returns rather than pursuing maximum gains, professionals ensure consistent profitability.
4. The "Always Another Trade" Mentality: This psychological framework prevents the attachment to specific positions that often leads to poor decision-making. By maintaining emotional distance from individual trades, professionals can make objective exit decisions.

Research in behavioral finance supports the wisdom of this approach. Studies examining trader performance have consistently found that those who focus on loss avoidance rather than profit maximization typically achieve better risk-adjusted returns over time. This "defensive" mindset prevents the catastrophic drawdowns that often derail trading careers.

Gareth's multi-position approach to gold trading further illustrates this sophisticated risk management:

"I had basically three shorts on gold... as gold rolled over I was in the money on all three, I took a little bit off on gold... then I took more off yesterday... and then I still left GDX on to kind of roll the dice... when you're in the money on kind of three different things that are relatively the same you take some off and then you roll the dice on that last one and try to get a little bit more out of it knowing that if it goes back to the upside you can always stop out break even and still keep the profits on your other trades."

This "core and satellite" approach to position management represents an advanced trading methodology. By maintaining multiple correlated positions with different exit points, traders can capture profits incrementally while maintaining exposure to potential further movement. This approach combines the psychological benefits of booking profits with the ability to participate in extended moves.

The power of this methodology lies in its psychological sustainability. By securing partial profits throughout a trade's lifecycle, traders reduce the emotional strain of watching unrealized gains fluctuate. This reduced stress typically leads to clearer decision-making and more disciplined trade management.

Technical Patterns Worth Monitoring: Netflix's Triple Divergence

Among the many technical setups Gareth highlighted today, the Netflix chart stood out for its compelling confluence of multiple bearish factors:

"Look at this pivot low, pivot low, and then if we flip it around we have major high, major high, and look at what we're tagging now... look at the negative divergence on the weekly RSI... high on the RSI, high on the chart, higher high on the chart, lower high on the RSI, higher high on the chart, even lower high on the RSI."

This analysis demonstrates the power of combining multiple technical approaches—in this case, parallel channel analysis with momentum divergence. When independent technical methods converge on the same conclusion, the probability of a successful trade increases significantly.

The parallel channel identification represents a sophisticated application of technical geometry. By identifying that price respects proportional distances between support and resistance, traders can project likely reversal zones with remarkable precision. This approach has sound psychological underpinnings—market participants tend to remember previous significant turning points and react accordingly when similar levels are approached.

The triple RSI divergence Gareth identified compounds the bearish case. Momentum divergences occur when price makes new highs while technical indicators fail to confirm those moves. Research has shown that multiple divergences (as seen on Netflix) typically signal stronger reversal potential than single instances.

Gareth's interpretation of this divergence adds a valuable dimension to technical analysis:

"It tells me essentially that big money is distributing into retail money... more retail and like mutual funds and kind of like the B squad, C squad, and D squad are buying while the A squad is unloading."

This understanding of divergences as potential distribution indicators aligns with institutional trading realities. Professional money managers typically begin position reduction before obvious technical breakdowns, creating precisely the divergence patterns Gareth identified. By watching these subtle clues, retail traders can gain insights into possible institutional positioning.

For traders seeking to apply these insights, similar multi-factor approaches can be applied across markets:

1. Identify primary technical structures (channels, trends, patterns)
2. Confirm with momentum indicators (RSI, MACD, stochastics)
3. Watch volume patterns for confirmation of distribution or accumulation
4. Consider intermarket relationships that might influence the security

The power of this approach lies not just in identifying potential trades but in distinguishing between high and low-probability setups—a critical distinction for effective position sizing and risk management.

Conclusion: Technical Discipline and the Emotional Challenge

As markets approach critical technical junctures amid complex economic data and geopolitical developments, Gareth's emphasis on technical discipline provides a valuable framework for navigating uncertainty:

"Shut out that emotion, use your logic, use your data analysis... I'm using data and science, essentially chart analysis, which give me probability... I just automatically do that. Doesn't matter what I think, what I feel, what I think about the numbers, whatever, frankly it doesn't matter, it's what are the charts telling me."

This unwavering commitment to technical discipline represents perhaps the most valuable insight for traders in today's volatile market environment. When faced with conflicting narratives about economic data, earnings reports, and geopolitical developments, the clarity of technical analysis provides an objective framework that cuts through emotional noise.

The S&P 500's approach to its gap fill target at approximately 5675 creates a fascinating technical juncture. After maintaining a bullish bias throughout the recovery rally, Gareth's shift to a bearish bias at this technical level demonstrates how skilled technicians adapt their outlook based on market position rather than narrative.

For traders applying these insights, several key themes merit attention in the days ahead:

1. The market's reaction to reaching the critical S&P 500 gap fill level
2. Potential distribution patterns in technology leaders like Netflix
3. The interplay between economic data and rate expectations
4. Ongoing developments in U.S.-China trade relations
5. The continuation or reversal of technical patterns in commodities markets

As Gareth concluded his analysis with a note of appreciation for the GAME PLAN community, he highlighted what drives many successful traders—the combination of profitable trading with meaningful contribution:

"Making money is great, but again, you know, there's something to be said for feeling like you're making a difference in a world today where it's tough for a lot of people out there."

This perspective reflects the mature trader's understanding that sustainable success comes not just from technical skill but from the broader context of purpose and contribution. By focusing on the process rather than just the outcomes, traders create the psychological foundation for long-term prosperity in the markets.