TRADING GAME PLAN REVEALED: Dow Breakout, Japan Risk & AI Bubble Warnings

Markets are complex organisms, driven by a constant tug-of-war between data-driven probability and raw human emotion. As Gareth Soloway, Chief Market Strategist at Verified Investing, highlighted in this morning's TRADING GAME PLAN REVEALED, history is littered with examples of "irrational exuberance" leading investors astray. From the dot-com bubble to the 2008 financial crisis, the narrative that "nothing can ever go wrong" is often the loudest just before something does. Today, the charts are telling a story of major inflection points, from tightening patterns in domestic indices to brewing macro risks overseas, demanding a clear-headed, probability-based approach.

Decoding the Triple Witching Hangover

Last Friday was a "triple witching" options expiration day, an event that can significantly distort market realities. As Gareth explained, this quarterly occurrence, where index options, future options, and stock options all expire simultaneously, often creates an artificial environment.

"Oftentimes you don't get a real sense of the market because institutions are too busy maneuvering and pushing the market to certain levels to make sure that they maximize their gains on options expiration."

To understand this dynamic, one must recognize the structure of the options market. Institutions are the primary sellers of options contracts to the public. This isn't a charitable endeavor; it's a calculated business built on statistical edges. They have sophisticated systems designed to pinpoint the price levels at which stocks or indices need to close for them to achieve maximum profitability. This creates a scenario where the price action on a triple witching Friday may not reflect true market sentiment but rather the powerful influence of institutional positioning. With that event now in the rearview mirror, this week’s price action will likely give us a much clearer picture of the market's true underlying trend.

The S&P 500 and the Dow's Decisive Moment

The S&P 500 is pulling back from a rather spooky high set last Friday. In a curious twist of market numerology, the index peaked at 6,667. This number is significant because the ultimate low of the 2008 financial crisis in March 2009 was 666 on the S&P 500.

"One thing that I brought up on Friday, that's a little spooky is that the S&P hit 6,667...if you go back to '09, what was the low on the S&P when it bottomed out...it was 666 to the downside."

While this could be a mere coincidence, such occurrences often add to the psychological weight at key market levels. Looking at the technicals, the S&P 500 now faces a resistance zone between 6675 and a more significant, longer-term trendline around 6725.

Even more compelling is the setup on the Dow Jones Industrial Average. The Dow is currently caught in a tightening wedge pattern, a formation where price action is compressed between a rising support line and a falling resistance line. This compression is reaching its apex.

"Wedge patterns are great because they condense price tighter and tighter...when it gets to the head, it's been tightened more and more...to the point where when it does break, we're going to get a big move."

Think of it like a coiled spring or a pressure cooker. The longer the price is contained, the more energy is built up, leading to a more explosive move upon the eventual breakout or breakdown. The Dow is now at a point where it can only remain within this pattern for another day or two at most. This implies that a major move—potentially 1,000 points or more in short order—is imminent. The direction of that break will be a critical signal for the broader market.

The Japanese Carry Trade: A Global Market Powder Keg?

While domestic indices present intriguing setups, a potentially larger risk is re-emerging from Japan. This is a story that mainstream financial media often overlooks, but it has profound implications for global markets. The Nasdaq 100’s high on Friday perfectly tagged an "X marks the spot" confluence of two trendlines originating from the July-August 2024 market correction. That 16% drop in the Nasdaq was directly triggered by instability in the Japanese Yen carry trade.

Now, similar rumblings are beginning again. The Japanese 10-year yield has just broken out of a bullish wedge pattern, signaling a significant move higher, potentially toward 1.8%. This is a crucial development because rising yields in Japan put pressure on their currency markets and, by extension, the carry trade.

The carry trade involves borrowing in a low-interest-rate currency (like the Yen) and investing in a higher-yielding currency or asset. When the Yen weakens against the Dollar (USD/JPY rises), this trade is profitable. However, when the Yen strengthens rapidly (USD/JPY falls), it forces a violent unwinding of these trades, causing global market instability. The key level to watch on the USD/JPY is 140.

"If the dollar yen starts falling and retests 140, you're going to get unrest in the whole financial system of the globe. Now if it breaks 140, holy cow, watch out below."

The fact that the Nasdaq 100 has rallied right back to a technical point derived from the last Japan-induced crisis, just as new warning signs are flashing in Japan, is a confluence that demands every serious investor's attention.

The AI Bubble: When Insiders Ring the Alarm

The narrative of an AI-driven market has been a powerful one, but now, even the architects of the revolution are sounding cautious. Over the weekend, Meta's Mark Zuckerberg stated that AI is most likely a bubble. OpenAI's Sam Altman has echoed similar sentiments.

This is reminiscent of 1996, when then-Fed Chair Alan Greenspan warned of "irrational exuberance" in the markets, which then proceeded to rally for several more years before the dot-com bust. The warnings from insiders don't necessarily mean a crash is imminent, but they signal that the underlying fundamentals are becoming detached from valuations.

Zuckerberg highlighted a fascinating paradox: he recognizes the bubble but feels Meta has no choice but to continue its massive spending on AI to avoid being left behind. This dynamic—knowing the end is likely negative but being forced to participate—is a hallmark of late-stage speculative manias.

A poster child for this irrationality is Oklo (OKLO), a company focused on building nuclear power plants. The stock surged nearly 30% on Friday after announcing it would break ground on a new plant... in 2030. This is a company with over a $20 billion valuation, zero revenue, and a primary project that is still years away from starting, all while insiders are reportedly selling shares.

"To me, that screams irrationality...No revenue, not even breaking ground for like another four or five years, yet the stock goes up 30% because they said they're going to build one in four or five years."

This type of price action is a clear sign that speculation, not fundamentals, is driving certain segments of the market. As investors, we must take note when those closest to an industry begin to warn of excess.

Bitcoin's Battleground: The Lines Are Drawn

Last week, Bitcoin provided a masterclass in technical analysis. It approached a monumental trendline originating in 2017, a line that has marked nearly every major high since. Gareth was crystal clear: for the bull run to continue, Bitcoin needed a confirmed close above the $117,200-$117,300 level.

It failed. The rejection was swift and brutal, leading to a massive flush that liquidated an estimated $1.5 billion in long positions overnight. Bitcoin now finds itself trading just below $113,000. The battle, however, is far from over. A new, critical line in the sand has been drawn.

An ascending trendline now provides major support around the $110,000 level.

"At 110,000, we must, if you're a bull, you have to hold the line. You have to. If it breaks this, watch out."

A break of this level would be technically devastating for two reasons. First, it would violate a major uptrend. Second, it would confirm the neckline of a potential head and shoulders pattern, a classic bearish reversal formation. A confirmed break of $110,000 would trigger a measured move that could take Bitcoin back to the $90,000-$95,000 range. The bull vs. bear case is now incredibly clear: bulls must defend $110,000 at all costs, while bears are defending the overhead resistance, which now sits closer to $117,500.

Commodity Check-In: Metals, Miners, and Energy

Gold: The yellow metal is once again attacking its key resistance line around $3,730. A confirmed break above this level is needed to unleash the next major parabolic move. As long as gold holds its support zone around $3,620, the bias remains constructive, but it needs to overcome this overhead supply to truly accelerate.
Gold Miners (GDX): The miners are showing significant strength. Using the technical principle of "as below, so above," we can project a potential target. By measuring the distance from the lowest point below a major trendline to the trendline itself, we can project an equivalent move above it. This calculation gives GDX a measured move target of approximately $75.50.
Silver: Silver executed its game plan perfectly, rallying directly to the $44.00 resistance level identified last week. This level, a major high pivot from 2011, is a natural place for consolidation. A decisive break above $44.00 opens the door for a move to the $48.00-$50.00 range.
Oil: Crude oil is showing weakness and is threatening to break its recent lows around $61.50/barrel. A break below this level should finally lead to the filling of a long-standing gap target at $60.65.
Natural Gas: After confirming a breakout above a key trendline, natural gas pulled back to test that line as support. So far, it is holding. As long as it does not confirm a break back below this line, the bias remains bullish, with a potential upside target of $3.60.

Conclusion: Navigating the Inflection Point

The market stands at a critical juncture. The Dow is coiled for a massive move, a brewing macro storm in Japan threatens global stability, insiders are waving red flags about the AI trade, and Bitcoin is locked in a decisive battle between bulls and bears. In such an environment, emotional decision-making is a recipe for disaster. The charts, however, provide a clear, unbiased roadmap. By focusing on key levels, understanding the interplay between different asset classes, and respecting the probabilities, traders can navigate the coming volatility with discipline and confidence. The game plan is set; now it's about execution.