GAME PLAN REVEALED: 08/25/2025

Friday's market rally was impressive on the surface, but beneath the surge lies a complex and concerning economic picture painted by none other than Fed Chair Jerome Powell. In this morning's GAME PLAN, Gareth Soloway, Chief Market Strategist at Verified Investing, peeled back the layers of Powell's speech to reveal a stark warning about stagflation. While the market initially cheered the prospect of rate cuts, the reasons behind them could signal significant trouble ahead.

This article delves deeper into the stagflationary threat, analyzes the precarious technical patterns forming in major indices, and uncovers the alarming sentiment indicators that suggest the market is on thin ice.

The Specter of Stagflation: Reading Between Powell's Lines

The market's knee-jerk reaction to the Federal Reserve's commentary on Friday was one of euphoria. The prospect of rate cuts in September sent equities soaring. However, the context behind this dovish pivot is what traders should be focusing on, and frankly, it’s a cause for major concern. As Gareth explained, Powell’s message was deeply unsettling.

"Jerome Powell in his speech said inflation is continuing to rise and it likely will continue. The jobs market is weakening and it will likely continue to weaken. He then said basically that because of the jobs market weakening, we will have to see Fed rate cuts."

This is the textbook definition of stagflation: a toxic economic cocktail of rising inflation combined with a weakening, stagnant economy. Gareth didn't mince words: "Jerome Powell just said, we are now in a stagflationary world."

Historically, stagflation is the most challenging environment for policymakers and the most painful for consumers. Typically, inflation rises when an economy is booming, and consumers have excess income to spend, pushing prices higher. In that scenario, the Fed can raise rates to cool demand. Conversely, in a weakening economy, the Fed cuts rates to stimulate growth.

But what happens when both problems occur simultaneously? Cutting rates to support a weakening jobs market while inflation is still rising is like pouring gasoline on a fire. It risks devaluing the currency and can make the inflation problem even worse, without necessarily fixing the underlying economic weakness. This is why Gareth warns that the optimism from Friday could be short-lived. The rally we saw could reverse entirely as the market digests the grim reality of stagflation.

The S&P 500's Precarious Wedge

The technical picture for the S&P 500 aligns perfectly with this cautious macroeconomic outlook. While Friday saw a "monstrous surge," the daily chart reveals a pattern that suggests a major move is imminent—and the odds favor the downside.

The S&P is currently trading within a rising wedge pattern. This formation occurs when two ascending trendlines converge, squeezing price action into an increasingly tight range. As Gareth described it, this pattern builds pressure like a compressed spring, leading to a powerful breakout in one direction or the other.

Crucially, technical analysis provides a probabilistic edge here. "In technical analysis, what we know is that in general up sloping wedges break to the downside," Gareth noted, estimating a historical breakdown probability of around 70%.

Furthermore, the number of times a trendline is tested provides additional clues. The lower trendline of this wedge has now been tested four times. According to Gareth's analysis, the first three hits are less likely to break, the fourth is a 50/50 proposition, and a fifth test would be favored to break down with approximately a 60% probability. After bouncing on the fourth hit, the market is now setting up for a potential fifth test, where the odds of a breakdown increase significantly. The QQQ chart shows a similar pattern, reinforcing this market-wide setup.

Under the Hood: Alarming Sentiment Indicators

Beyond the charts, two key sentiment indicators are flashing bright red warning signals, suggesting that retail and institutional investors have become dangerously complacent and overleveraged.

First, margin debt is at an all-time high. Margin debt represents the amount of money investors have borrowed to buy stocks. When it reaches record levels, it signals extreme confidence and speculation. Investors are so certain the market will continue rising that they are willing to pay interest on borrowed funds to amplify their bets.

Historically, this has been a powerful contrarian indicator. "When people get too confident and they start leveraging up... it can cause forced liquidations that can accentuate or accelerate downside in the markets," Gareth warned. If the market turns, these leveraged investors receive margin calls, forcing them to sell their positions, which adds fuel to the selling pressure and can turn a minor pullback into a major correction.

Second, the volume in zero-day options (0DTE) has exploded. These are highly speculative options contracts that expire on the same day they are traded. They are essentially short-term gambles on intraday market direction. According to Gareth, 0DTE options now account for over 65% of all daily options volume—another all-time high. This level of speculative fervor is a classic sign of a market top, indicating that a "gambling" mentality has replaced prudent investing.

Key Stocks and Sectors in Focus

NVIDIA (NVDA): With earnings due on Wednesday, all eyes are on NVIDIA. While Gareth expects the earnings to be great, he also believes this is largely priced in. More importantly, the stock has suffered a critical technical breakdown, breaking below a key up-sloping trendline. This development fundamentally changes the probabilities. "When you break a key trend line... it still limits the upside now," Gareth explained. The stock could rally back to the trendline (the "scene of the crime"), but that line now acts as a firm ceiling. The more NVIDIA rallies into its report, the more the odds favor a post-earnings decline.

Alphabet (GOOGL): Alphabet's recent surge has run into a wall of resistance. The chart shows a confluence of two major technical barriers: a long-term ascending trendline that has marked previous tops and a double-top gap fill. This two-factor resistance makes a pullback highly probable in the coming days.

China Tech (KWEB, BIDU): In stark contrast to the overbought U.S. markets, Chinese technology stocks appear to be breaking out from deeply oversold levels. Gareth highlighted KWEB on Friday as it was breaking out, and it has shown strong follow-through. Baidu (BIDU) is another name on the verge of a major breakout. A daily close above $91.15 USD could signal the start of a significant move higher, offering a compelling opportunity in a market segment that has been ignored for years.

Crypto's Classic Technical Test

The crypto market is providing a masterclass in technical analysis, acting as a potential leading indicator for risk assets.

Bitcoin (BTC): Bitcoin's recent price action has been a textbook example of a failed rally. After a confirmed breakdown below a key trendline, it bounced on Friday's dovish Fed news. However, the rally failed well short of the major resistance level around $118,000 USD and has since rolled over to make a new lower low. This is a classic bearish retest. The next critical support is $112,000 USD. A confirmed daily close below this level would open the door for a move back to the psychological $100,000 USD mark.

Ethereum (ETH): While ETH briefly made a new all-time high, it has since pulled back. It is currently trading within a parallel channel, with upside resistance around $5,100 USD. The most important level to watch, however, is the major support zone between $4,000 USD and $4,075 USD. This area represents a confluence of horizontal support and the lower band of the parallel channel. As Gareth stated, "If that breaks, the flood gates are likely going to open." As long as it holds, another push higher is possible, but a break would be a major bearish signal.

Commodities, Q&A, and the Path Forward

Oil (CL=F): Gareth identified a high-probability short-selling opportunity in crude oil. After breaking down from a bear flag pattern, oil is now retracing to the underside of the broken trendline, which has now converted into major resistance. He is eyeing an entry in the $65.65 to $65.75 USD per barrel range for a swing trade short, targeting a move down to $60.65 USD.

Tesla (TSLA): In response to a viewer question, Gareth analyzed Tesla's chart. The stock remains in a short-term breakout mode following Friday's rally. However, it must hold the key support zone between $308 USD and $315 USD. A confirmed close below $308 USD would negate the bullish setup and likely send the stock well below $300 USD.

Conclusion: A Market at a Crossroads

Friday's rally, fueled by the promise of rate cuts, masks a deeply concerning economic reality. The emergence of stagflation, combined with precarious technical patterns like the rising wedge in the S&P 500 and extreme levels of speculative sentiment, suggests the market is standing on a precipice. While the narrative may feel bullish, the underlying data and charts are flashing clear warning signs of a potential reversal.

For savvy traders, this environment demands vigilance and a focus on probabilities, not predictions. While downside risks are mounting in the broader U.S. market, pockets of opportunity are emerging in forgotten sectors like China tech. By adhering to the principles of technical analysis and risk management, investors can navigate the challenging days ahead and position themselves to capitalize on the major moves that these patterns are forecasting.