GAME PLAN REVEALED: Strong Economy, Fed Policy & TSM Earnings Analysis

This morning, the market received a dose of economic data that challenged the prevailing narrative of a slowing economy in need of a rescue from the Federal Reserve. With surprisingly strong Retail Sales and a dip in Jobless Claims, investors are now grappling with a fundamental conflict: a resilient economy versus persistent expectations for interest rate cuts. In this morning’s GAME PLAN, Gareth Soloway, Chief Market Strategist at Verified Investing, dissected this complex environment, highlighting how a probability-based approach to the charts is the ultimate tool for navigating the noise.

Today's analysis goes beyond the headlines, exploring the crucial lessons from Taiwan Semiconductor's earnings, the power of confirmation signals on the S&P 500, and the psychological discipline that separates successful traders from the crowd.

An Economy Flexing Its Muscles

Just when many were bracing for signs of a slowdown, the latest economic reports painted a picture of surprising strength. Jobless Claims, a key indicator of labor market health, came in at a muted 221,000. This marks a significant drop from the 240,000 to 250,000 range seen just a month ago, suggesting that the labor market remains robust. As Gareth noted, for new investors, it’s crucial to understand what this means: “Jobless Claims are people filing for unemployment. So the higher the number, the worse it is for the economy. So the fact that we've come back down to 221,000 means that basically the economy is doing just fine.”

Adding fuel to this narrative was the Retail Sales report, which blew past expectations with a +0.6% increase, far exceeding the anticipated +0.1%. This data points directly to a confident and active consumer. But what’s driving this renewed vigor? Gareth pointed to a confluence of factors, including delayed tariffs and muted inflation, but singled out one powerful psychological driver: the wealth effect.

"When people look at their 401ks, their IRAs, their retirement accounts, their investment accounts, and they say, wow, look at this gain from April, up 25% or 30% or 40%... Now they're feeling better about themselves. They're feeling better about their financial condition and they're more apt to go and spend. That's consumer spending and that is the driving force behind the economy."

This feedback loop, where a rising stock market boosts confidence and fuels spending, which in turn supports the economy, creates a complex dynamic that directly challenges the case for imminent monetary easing.

The Fed's Conundrum vs. Market Hopes

The strong economic data throws a wrench into the market's persistent hope for Federal Reserve rate cuts. While political pressure for cuts may be high, the data itself tells a different story. As Gareth bluntly stated, “The economic data the way it is does not signal the Fed should be cutting rates. Absolutely not. Really, the Fed needs to keep that in their pocket for when we see a major slowdown.” Cutting rates into a strengthening economy risks stoking the very inflation the Fed has worked so hard to contain.

Despite this logical conclusion, the market's expectations, as measured by the CME FedWatch Tool, reveal a fascinating disconnect. While a rate cut at the end of July is seen as highly unlikely (a 97.4% probability of holding steady), the market is still pricing in a 52.6% chance of a cut in September. This near 50/50 split highlights the uncertainty and the tug-of-war between economic reality and market desire. This tension is a critical backdrop for all trading decisions, as any shift in these probabilities could trigger significant market volatility.

The Art of Confirmation: Decoding the S&P 500

The S&P 500 chart perfectly encapsulates the market's current state of indecision. After being stalled by a major resistance confluence—what Gareth calls the "three horsemen"—the index recently broke below a key support trendline drawn from the April 7th lows. For many traders, this was a clear sell signal. However, as Gareth explained in yesterday's GAME PLAN, a simple break is not enough.

"I've seen way too many times where you close below a level, people say, oh, here's a breakdown. And then it reverses back up. And essentially, that's why I created the confirmation signal."

This is where the discipline of probability-based trading comes into play. A simple close below a major level offers only a 50/50 chance of being a legitimate breakdown. It's a coin flip. To shift the odds firmly in a trader's favor, one must wait for confirmation—a subsequent candle that closes below the low of the breakdown candle. Without it, the risk of a "fake out" or reversal is extremely high.

Yesterday's price action was a textbook example. The market dipped early, looking like it would confirm the breakdown, but then reversed to close higher, trapping shorts and invalidating the bearish signal. Today, the market is again pushing higher, fighting to reclaim that broken trendline. This demonstrates the immense value of patience and process. By waiting for an 80% probability signal instead of acting on a 50/50 one, traders can avoid costly traps set by institutional players.

When Great News Isn't Good Enough: The Taiwan Semi Story

Earnings season provides a masterclass in market psychology, and Taiwan Semiconductor's (TSM) report is a prime example. The company delivered incredible numbers, beating on both revenue and earnings, driven by massive AI demand. Yet, the stock's reaction was a muted 3% gain. Why? The answer lies in the chart.

"When a stock rallies precipitously, like a massive move up going into earnings, it's building in that it's going to beat expectations. And so even when they do, there's limited upside to that."

TSM had already rallied a staggering 83%, from its April 7th low of $134 to its pre-earnings price near $245. The market had already priced in perfection. When perfection was delivered, there was little fuel left in the tank for a further surge. This is a critical lesson: the context of the price action leading into a news event is often more important than the news itself.

Furthermore, TSM is now trading directly into a major technical resistance zone between $244 and $251. This zone is formed by the convergence of two critical trendlines, creating a high-probability area for a pause or pullback. Even with phenomenal news, a stock battling significant overhead resistance after a massive run is more likely to see profit-taking than a sustained breakout.

The Trader's Mindset: Probabilities Over Preconceptions

Throughout the session, a core theme emerged: the paramount importance of the charts over any personal bias, narrative, or news story. Gareth's analysis of Bitcoin crystallizes this philosophy. After breaking a multi-year trendline, Bitcoin printed a "topping tail" candle—a clear reversal signal. While many are focused on the narrative around potential US legislation, a disciplined trader focuses on the price action.

"The one thing that gives us the best probability of success, what is it? The charts. The charts give us probabilities. The charts don't lie. The charts don't have biases. They are what they are. And until proven otherwise, that's what I follow."

This mindset protects traders from "sell the news" events and narrative traps. We all have preconceived notions of what should happen, but the market is the final arbiter. The charts provide an unbiased, probabilistic roadmap.

This same logic applies to stocks like GE, which reported strong earnings and raised guidance. While the news is positive, the chart shows a near-vertical ascent into major channel resistance. Gareth used a powerful analogy: a stock is like a marathon runner. "You can't tell the marathon runner, okay, you just literally finished your marathon. Now go run another one... Same thing with stocks." They need to rest, consolidate, and refuel before their next major move. Ignoring these signs of exhaustion, even on good news, is a recipe for buying at the top.

A Cross-Asset Check-Up: Key Levels to Watch

US Dollar (DXY): The Dollar has broken out above a key descending trendline and successfully retested it. As long as it holds, the bias is for further strength.
10-Year Treasury Yield (US10Y): After a strong run-up, the yield is digesting its gains. However, with stronger economic data, a push towards the next major resistance level at 4.55% remains a distinct possibility.
Bitcoin (BTC): The dominant signal remains the topping tail formed after breaking its long-term trendline. That price action must be respected as a sign of potential resistance until negated by a strong close above it.
Ethereum (ETH): Performed flawlessly, running directly to the $3,450 resistance target identified in yesterday's GAME PLAN before stalling. A break above this level would target $3,700 next.
Gold & Silver: Gold is showing signs of a near-term pullback, with Gareth targeting the $3,060-$3,070 area for a short-term swing trade, while his long-term bullish outlook remains intact. Silver hit its upside target near $39 and printed a reversal candle, signaling resistance.
Oil & Natural Gas: Crude oil is consolidating in a classic bear flag pattern. A confirmed close below the flag's lower trendline would signal a probable move down towards $63.75. Natural Gas is grinding higher but approaching a significant resistance zone around $3.73-$3.75.

Conclusion: Navigating with a Probabilistic Edge

Today’s market is a fascinating intersection of conflicting signals: a robust economy, persistent rate cut hopes, and individual stocks hitting points of exhaustion even on stellar news. Navigating this landscape requires moving beyond simple bullish or bearish labels and embracing a more nuanced, probability-based framework.

By prioritizing chart analysis, demanding confirmation before acting, and understanding the psychology of market expectations, traders can build a durable edge. The lessons from TSM, the S&P 500, and the broader market underscore a timeless truth: discipline, patience, and a deep respect for technical probabilities are the cornerstones of long-term trading success.