GAME PLAN REVEALED: S&P 500 Bear Flag, Earnings Trades & Trader Psychology

In this morning's GAME PLAN show, Gareth Soloway, Chief Market Strategist at Verified Investing, delivered a masterclass in navigating a complex market landscape. While the broader market sentiment sits in a neutral-to-positive zone, weak earnings from key semiconductor stocks are creating pockets of intense volatility. Today's analysis moves beyond the headlines to dissect the critical chart patterns, high-probability trade setups, and the disciplined mindset required to capitalize on them.

This article will expand on the key takeaways from the show, providing deeper context on the emerging bearish pattern in the S&P 500, the psychology behind trading earnings-driven volatility, and the specific levels to watch in stocks like SMCI, AMD, and Shopify.

The S&P 500's Ominous Pattern

After a sharp sell-off from recent highs, the S&P 500 has entered a period of consolidation. While casual observers might see a simple pause, a more trained eye can identify the early stages of a classic technical pattern. As Gareth pointed out, the current formation has a distinct character.

"When you have a sharp down move, especially coming off of highs like this, and you get this sort of pattern formation, this is known in technical analysis as in spirit of bear flag."

A textbook bear flag consists of a sharp decline (the flagpole) followed by a sideways or slightly upward-drifting consolidation channel (the flag). This pattern represents a brief pause before a probable continuation of the downtrend. The "in spirit of" distinction is important here; the S&P 500's consolidation has a slight incline, which still fits the bearish criteria.

However, Gareth was quick to add a crucial caveat: the pattern is still "immature." With only two candles forming the flag so far, it has not fully developed. A mature, more reliable bear flag typically contains five to seven candles. This means that while the current structure leans bearish, it has a higher probability of changing. For now, it serves as a significant warning sign that the recent sell-off may not be over, and traders should remain vigilant for a potential downside resolution.

The Professional Trader's Mindset: Probabilities, Not Predictions

One of the most profound lessons from today's show was the distinction between predicting the future and trading probabilities. This concept is perfectly illustrated by the analysis of stocks experiencing massive post-earnings drops, like Snapchat. After cratering nearly 20%, the immediate question for many is, "Where is it going next?" A professional trader reframes the question entirely.

"I'm not telling you where it's going. I'm telling you where if it goes there, where would I buy it, right? ... A good trader scopes out where the high probability level will be if it gets there, where a bounce will come in and that's so, so important folks, so, so important to understand the mentality here."

This is the essence of probability-based trading. It’s not about guessing if Snapchat will continue to fall. It's about identifying, in advance, the price levels where the probability of a technical bounce is highest. For Snapchat, Gareth identified two such levels:

Day Trade Level: A double bottom pivot around $7.12.
Swing Trade Level: A much lower double bottom from 2018, around $5.00.

By defining these levels beforehand, a trader removes guesswork and emotion from the decision-making process. If the stock reaches the level, the trade is executed based on pre-analyzed data. If it doesn't, the trader simply moves on. This disciplined approach of identifying if/then scenarios is a cornerstone of long-term profitability.

Earnings Volatility: Identifying High-Probability Setups

Earnings season is a minefield of volatility, but for the prepared trader, it's a field of opportunity. Today's session highlighted several stocks with dramatic moves, each presenting a unique lesson in technical analysis.

Semiconductor Weakness: SMCI & AMD

The semiconductor sector took a hit, with Super Micro Computer (SMCI) leading the charge downward, dropping 17-18% in the pre-market on an earnings and guidance miss. Instead of panicking, Gareth identified a clear, data-driven support zone for a potential day trade.

SMCI Day Trade Zone: Between $45.85 and $44.15. This area represents a prior consolidation zone where price struggled to break out, indicating it has now become a significant support shelf. A bounce from this zone is highly probable.
SMCI Swing Trade Level: A much lower level around $36.70, based on a longer-term trend line. This highlights the difference in strategy and risk tolerance between a short-term day trade and a longer-term swing position.

Advanced Micro Devices (AMD) also fell, though less dramatically. After a historic run from $76 to $183, some profit-taking was inevitable. For AMD, the key level to watch is the $146.27 area. This isn't a random number; it's a powerful confluence of a major gap fill and a previous pivot high, making it a high-probability zone for a potential swing trade entry.

The Extremes: Snapchat's Plunge and Shopify's Surge

Contrasting the semiconductor weakness was Shopify (SHOP), which experienced a monster move up on its earnings. The stock surged toward a critical long-term, up-sloping trend line that has acted as major resistance on multiple occasions. This setup creates a potential shorting opportunity. Gareth identified a pierce of the psychological $150 level as a potential entry for a short-side day trade, using the confluence of the trend line and the round number as his rationale.

This juxtaposition of SMCI, AMD, SNAP, and SHOP demonstrates how technical analysis can be applied to any situation—strong moves up or down—to find logical, high-probability trade setups.

The Psychology of the Trade: Capitalizing on Emotion

Why do these levels work? A key reason is market psychology. The most potent trading opportunities arise from what Gareth calls "abnormal emotion."

"As a day trader or a swing trader, what you're looking for is abnormal volatility, which means abnormal emotion. ... You're looking for where people are panicking... or where people are just buying because they think it's just going to go up... Essentially greed takes over. And that's where a good day trader and swing trader can be a counter trend trader."

Stocks like Uber and Disney, which were nearly flat after their earnings reports, were immediately dismissed as untradable for the day. There was no abnormal emotion, no panic, and no greed to exploit. The real opportunity lies in fading the emotional extremes present in stocks like SMCI and Shopify.

To do this effectively, a trader must first master their own emotions. This is a journey that takes time and immense discipline. As Gareth shared from his own experience:

"It took me a long, long time to get my head to the point where I wasn't thinking emotionally, where I was looking at a chart and making decisions purely based on what the chart was saying. But once I do that, it's unbelievably freeing."

By becoming an objective observer of the chart, a trader can use the market's collective emotion as a powerful contrarian indicator, buying into panic and selling into euphoria at predefined technical levels.

A Tour of the Markets: Commodities and Crypto

A holistic market view requires looking beyond equities. In the commodities space, Gareth highlighted a recent successful trade in oil. Using a 2x short oil ETF (SCO), he and his members exited for a 13% gain in just a few days, precisely as the price of oil hit a key trend line support. This is a perfect example of disciplined profit-taking. Even though he believes oil may still go lower, he respected the technical level. "Just because you think it's going lower, doesn't mean that you can't exit a swing trade and then wait for a bounce and always reshort it if you want."

In the crypto markets, Bitcoin is also showing signs of a potential bear flag, similar to the S&P 500. A breakdown of the $111,800 support level could trigger a move toward $108,000. For Ethereum, a key buy level was identified at the $2,800 mark, a significant prior consolidation zone.

Conclusion: The Path of a Disciplined Trader

Today's market action offers a textbook case study in the methods of a professional trader. The focus is not on being right about market direction but on correctly identifying high-probability zones where risk is defined and the potential for reward is significant. From the emerging bearish pattern on the S&P 500 to the precise entry levels on earnings movers like SMCI and Shopify, every decision is rooted in the unemotional language of the charts.

The ultimate lesson is one of discipline and patience. A trader doesn't need to trade every day or have an opinion on every stock. They need to wait for the A+ setups—the ones where multiple technical factors align and market emotion is at an extreme. By mastering this process, traders can remove the guesswork and build a consistent, probability-based edge in any market environment.