TRADING GAME PLAN REVEALED: AI Stocks Face Competition & Market Coils

As traders head into the Labor Day holiday weekend, the market is serving up a complex cocktail of conflicting signals. Yesterday’s post-Nvidia euphoria was tempered overnight by disappointing news from other key tech players, while a new challenger in the AI chip space emerged from an unexpected corner. To top it off, crucial inflation data came in so perfectly aligned with expectations that it raised more questions than it answered. In this morning's TRADING GAME PLAN REVEALED show, Gareth Soloway, Chief Market Strategist at Verified Investing, cut through the noise to reveal the critical patterns, underlying risks, and high-probability setups that every trader needs to be watching.

The "Perfect" Data and Holiday Weekend Skepticism

This morning, the market received the latest Personal Consumption Expenditures (PCE) price index data, the Federal Reserve's preferred measure of inflation. The results were striking: every single data point, from the month-over-month figures to the year-over-year core numbers, landed exactly on the forecasted consensus. While markets initially saw a small relief pop, the precision of the data left a lingering sense of skepticism.

"Every number there that you see below me was exactly to the penny in line with estimates. Just saying folks. Again, could it be that we want to keep the markets up into theholiday weekend here? ...I'm just throwing it out there, but to me, considering the economic data, how kind of off it's been just naturally, to get a day where every single number...met exactly at the forecasted level. Just saying."

This observation highlights a crucial aspect of professional trading: maintaining a healthy dose of skepticism and looking beyond the headlines. With a three-day holiday weekend known for consumer spending, there's a narrative incentive to present a stable economic picture. However, for a data set this complex to align so perfectly is a statistical anomaly. This doesn’t mean the data is fabricated, but it does mean that traders should be wary of taking it at face value. The market's muted reaction suggests that many participants share this cautious view, recognizing that the underlying economic pressures haven't simply vanished.

Cracks in the AI Monolith?

The seemingly unstoppable AI narrative, which has propelled markets for months, is beginning to show its first significant cracks. While Nvidia’s earnings were strong, subsequent news from other corners of the sector painted a more complicated picture.

First, Marvell Technology (MRVL), another key semiconductor and AI player, reported disappointing revenue guidance, sending its stock down sharply in pre-market trading. This was a clear signal that the tailwinds lifting the entire sector may not be as uniform as previously believed.

Second, and perhaps more consequentially, Chinese tech giant Alibaba (BABA) announced the development of an advanced AI chip capable of a broad range of tasks. This positions them as a direct and formidable rival in a space long dominated by a few US companies. The market’s reaction was immediate: Alibaba’s stock surged, while established AI names felt the pressure.

As Gareth noted, the valuations of many semiconductor stocks are primed for disappointment. "Where a lot of these semiconductor trades are trading or these stocks are trading, they are primed for disappointment, meaning that if you get some competition out there, margins are going to get slammed."

This is a classic business cycle reality. When a product commands extraordinary profit margins, as AI chips currently do, it inevitably attracts intense competition. The entrance of a well-capitalized player like Alibaba is a long-term threat to the high margins that have justified sky-high valuations. This development, coupled with misses from companies like Marvell, suggests the AI trade is maturing from a monolithic momentum play into a more nuanced environment where individual company performance and competitive positioning will matter far more.

S&P 500 and Nasdaq: Coiling for a Major Move

Amidst the conflicting news flow, the major indices are tightening into technical patterns that suggest a decisive move is imminent. Both the S&P 500 and the Nasdaq 100 are trading within converging trend lines, compressing price and building energy for a breakout or a breakdown.

On the S&P 500 daily chart, the index is caught between a rising support line around 6,415 and a rising resistance line near 6,545. These lines are converging, meaning a resolution is likely within one to two weeks. Crucially, the index is approaching its lower support trend line for what would be the fifth time. Based on historical probabilities, this carries a significant implication:

"This would be a fifth hit to the downside, which is a 60% chance of breaking... And again, upslope wedges tend to break to the downside."

This is the essence of probability-based trading. It’s not a guarantee, but it shifts the odds. A 60% chance of a breakdown is a statistical edge that informs a trader's bias and risk management. The Nasdaq 100 (QQQ) chart tells a similar story, hugging the underside of an upslope channel and also approaching a potential fifth test of support. A break of this support could, as Gareth stated, open the "floodgates to the downside."

This probabilistic approach is a cornerstone of professional analysis. It frees a trader from the emotional rollercoaster of hope and fear, allowing for a more calculated and logical approach. "You start to view charts very kind of logic-based. And it actually is very freeing to be free of getting caught up in the emotion."

Earnings Movers and Key Levels to Watch

Beyond the macro picture, individual earnings reports have created several high-probability trading setups.

Affirm (AFRM): The "Buy Now, Pay Later" Canary
Affirm, a leader in the "buy now, pay later" space, soared over $93.00 USD after reporting stellar earnings. While this is great for the company, it can be a cautionary signal for the broader economy. Historically, the popularity of these services surges just before a recession, as consumers stretch their finances to maintain their lifestyles. For traders, the immediate opportunity lies in a key resistance level around $96.00 USD. This level is defined by multiple historical pivot points, creating a zone where the stock’s powerful rally is likely to face significant selling pressure.

Dell (DELL): The Head and Shoulders Target
Dell, a major player in data centers, saw its stock fall to around $125.00 USD after its report. The daily chart reveals a classic bearish Head and Shoulders pattern that was triggered by today's gap down. Using a measured move technique—projecting the distance from the head to the neckline downwards from the breakdown point—provides a clear technical target. In this case, the target is approximately $112.00 USD. What makes this target so compelling is its confluence with a major historical support zone, validating the technical projection. This provides a roadmap for a potential short trade, with a clear profit target in mind.

Marvell (MRVL): The Bounce Zone
For Marvell, which suffered a significant drop to around $66.30 USD, the key is not to chase the downside but to identify where it might find its footing. A powerful support zone exists between $59.35 USD and $56.35 USD. This area is defined by previous pivot lows and a significant gap fill. Should the stock sell off into this zone, it presents a high-probability area to accumulate shares for a short-term technical bounce.

The Unseen Economic Headwinds

Adding another layer of concern, industrial giant Caterpillar (CAT) announced it expects to take a $1.5 billion to $1.8 billion USD hit due to tariffs. This is a tangible sign that geopolitical trade policies are now directly impacting the bottom lines of major US corporations.

This news, along with the other "little things" like misses in AI data center numbers, serves as a crucial reminder to stay vigilant. "These little things continue to be signals to me to be very aware, especially with the VIX at 14, really low on the VIX that we could be on the verge of something."

When the market's fear gauge (the VIX) is low and euphoria is high, it is precisely the time to pay closest attention to these underlying cracks. Caterpillar’s warning is a signal that global economic realities may soon pierce the bubble of market optimism. The stock is now at risk of forming a lower high, and a break below the key $405.00 USD support level would confirm the start of a new downtrend.

The Simplicity of Professional Trading

Throughout the analysis, a core philosophy emerged: effective trading is often simple trading. It’s not about cluttering charts with dozens of indicators, but about understanding price action.

"The candlesticks will tell you where the levels are going to be. Now, is it sometimes helpful to do Fibonacci? Yes...but I look for them as conjoining retrace levels, right? Meaning that if you already have a trend line there and a fib matches right around it, now you're talking about a more successful trading opportunity with a higher success rate."

This focus on clean charts and multi-factor confluence is what creates a sustainable edge. By starting with basic trend lines and pivots, and then layering on other tools for confirmation, traders can identify the most robust and highest-probability setups without getting lost in analytical paralysis.

Conclusion: A Market at a Crossroads

As we head into September, a month known for historical volatility, the market finds itself at a critical crossroads. The major indices are coiling within patterns that promise a significant move, with probabilities currently favoring a breakdown. The dominant AI narrative is being challenged by new competition and signs of slowing growth, while macroeconomic headwinds like tariffs are beginning to manifest in corporate earnings.

The key for traders is to ignore the hype, focus on the charts, and think in probabilities. The setups in individual names like Affirm, Dell, and Marvell provide clear, actionable levels based on sound technical principles. By remaining disciplined, managing risk, and staying attuned to the subtle signals beneath the market's surface, traders can confidently navigate the uncertainty and position themselves for whatever comes next.