GAME PLAN REVEALED: S&P 500 Bear Flag, Tech Bubble Warning & AI Crash

On the surface, the market appears to be in a state of calm, drifting with a slight upward bias. However, as Gareth Soloway, Chief Market Strategist at Verified Investing, detailed in this morning's GAME PLAN, a look beneath the hood reveals significant underlying tensions. While major indices hover near all-time highs, a stark divergence is emerging: a handful of mega-cap tech stocks are holding the market aloft while others are being mercilessly punished for any sign of weakness. This dynamic, coupled with ominous historical parallels and specific chart patterns, creates a complex environment that demands a disciplined, probability-based approach.

Today, we'll delve deeper into the key themes from the show, exploring the precarious technical setup in the S&P 500, the psychological battle between institutional sellers and retail buyers, the shocking earnings debacles in individual names, and the critical levels to watch across commodities and crypto.

The S&P 500's "In Spirit Of" Bear Flag

The S&P 500 chart presents a fascinating and potentially bearish picture. The index is currently trading within a perfectly formed parallel channel, pressing against the upper boundary that has served as resistance since the jubilation-fueled gap up on Meta and Microsoft earnings. While the market has consolidated near these highs, it has failed to decisively break out, instead carving out a pattern that technical traders are watching with keen interest.

"What's so fascinating to me is that you've gotten a bear flag off of that," Gareth noted, before clarifying the specific nature of the pattern. "This is technically, if you looked in a textbook, this would be what you would find in what would be called an in spirit of bear flag... this is still within that range where it would be looked at as an in spirit of bear flag."

A classic bear flag consists of a sharp, steep drop (the "flagpole") followed by a period of consolidation that drifts slightly upward in a tight channel (the "flag"). It signals a temporary pause before a probable continuation of the downtrend. An "in spirit of" bear flag, as Gareth describes, allows for a slightly steeper upward angle on the flag (up to 45 degrees) but still carries bearish implications.

To invalidate this bearish pattern, the market would need to make a decisive move. "How do you negate a bear flag? Simply, just close above the flagpole high. So again, basically 6430, you would negate the bear flag." A close above this level would neutralize the immediate bearish threat, though the upper parallel channel line around $6440 would still present a formidable resistance hurdle.

A Dangerous Divergence: Institutional Dumping vs. Retail Euphoria

Perhaps the most compelling and cautionary observation from this morning's analysis is not on the price chart, but in market sentiment. Gareth highlighted a troubling psychological divergence that has historically preceded major market downturns.

"What I found interesting here, guys, is that even though the S&P has not taken out the high of the bear flag, I've noticed that sentiment among many retail investors is even more bullish than it was when we were at the previous high."

This is a critical point. When sentiment becomes more euphoric while the price fails to make new highs, it often signals a distribution phase. Large institutions, or "smart money," may be using the elevated sentiment and retail buying pressure as an opportunity to unload their large positions without causing a panic.

"To me, again, it's somewhat unscientific, but it is an indicator that the markets are seeing institutional dumping... retail continues to buy into the market and put more leverage on the table while these institutions are slowly basically unloading positions into retail."

Having traded since 1995, Gareth drew direct parallels to previous market tops: "I saw the dot-com collapse. I saw the 2007 highs before the Great Recession and obviously through COVID, it's something that's very, very similar. These type of things show up over and over and over again." This historical context serves as a potent reminder that periods of extreme retail bullishness, especially when not confirmed by price action, are often a sign of late-cycle behavior.

The Tech Weighting Warning: Echoes of the Dot-Com Bubble

Adding another layer of concern to the long-term picture is a staggering statistic about the market's current composition. The concentration of value in a few mega-cap tech stocks has reached an unprecedented level, creating a structural risk that cannot be ignored.

"The NASDAQ or the tech sector has now bubbled up to where it is a bigger value relative to the S&P than even in 1999 and 2000," Gareth revealed. "If you look at the weighting of technology, it is now higher than it was in 2000 during the dot-com bubble just before it collapsed."

This is not a prediction of an imminent 2000-style collapse. However, it is a crucial piece of data for any investor seeking to make informed decisions. When market leadership becomes this narrow and valuations in one sector become this extreme, the entire market becomes more vulnerable to shocks affecting that sector. It's a warning sign that highlights the current lack of breadth and the immense faith being placed in a handful of companies. This is the kind of factual data that gets lost in the hype-filled narratives that dominate financial media, and it underscores the importance of a realistic, data-driven approach.

The Haves and Have-Nots: Earnings Season Carnage

The divergence between the mega-cap leaders and the rest of the market was on full display with several shocking pre-market earnings reports. These moves illustrate a key theme: in this market, you either meet or beat lofty expectations, or you get crushed.

C3.ai (AI): The AI software company delivered a disastrous pre-announcement. The company, not scheduled to report until September, warned that its revenue would be significantly lower than anticipated. "Their estimate for revenue was about $104 million. They're telling Wall Street they're only going to come in around $70 million in revenue. That's a 33% lower amount of revenue than was expected." The market's reaction was swift and brutal, with the stock plummeting over 34%. For traders looking to capitalize on the volatility, Gareth identified a potential day trade opportunity, noting, "From $13.95 down to about $13.25, there will be a good amount of technical support." He was careful to distinguish this as a short-term day trade only, not a longer-term swing trade, given the fundamentally negative news.

Monday.com (MNDY): Another victim of earnings season, Monday.com was "trounced," dropping from a closing price near $250 on Friday to below $200 in the pre-market. This massive $50 drop is another example of the market's unforgiving nature. For a potential bounce trade, Gareth identified a key technical zone based on a major pivot low and a gap fill. "I do have my levels here on Monday... a zone of support at 188 to 182." This confluence of technical factors creates a high-probability zone for a potential intraday reversal.

"The Charts Are In Charge": Lessons from Gold and Bitcoin

The most important principle for navigating any market environment is allowing the charts to guide your decisions, not your personal beliefs or biases. The recent action in precious metals and cryptocurrencies provides a masterclass in this concept.

Gold (XAU/USD) & Gold Miners (GDX): After a confirmed breakdown, gold retraced back to the underside of its broken trendline. Despite bullish sentiment creeping back in, the chart was signaling clear resistance. As Gareth stated, "It's not Charles in charge, it's charts are in charge." The GDX acted as a perfect leading indicator, hitting its own major descending trendline on Friday and turning lower, foreshadowing gold's subsequent plunge. This demonstrates how intermarket analysis can provide clues and increase the probability of a successful trade. Gold's sharp drop today was a textbook example of price respecting a confirmed resistance level.

Bitcoin (BTC): The leading cryptocurrency saw a surge over the low-volume weekend, exciting many bulls. However, the move is now seeing a significant reversal. The key, as Gareth has emphasized, is the topping tail candle from the previous high. "Until you negate the topping tail... you must be suspect about whether or not this is the next bull run." To negate that bearish signal requires a daily close above the high of that candle, around $123,200. Until that happens, the probabilities favor the sellers, and the recent surge remains a potential bull trap within a larger corrective structure.

Ethereum (ETH): Ethereum also had a massive run, rocketing from $3,300 to $4,300 in about a week. However, it has now run directly into a long-term parallel channel resistance line. This technical barrier, combined with the overextended nature of the move, makes a pullback or consolidation likely. The first key support level to watch on a pullback would be the former pivot high around $3,870.

Conclusion: Navigating with Probabilities, Not Predictions

The current market is a minefield of conflicting signals. A placid surface on the major indices masks violent moves in individual stocks, while bullish sentiment runs headfirst into bearish chart patterns and historical warnings. In this environment, chasing hype is a recipe for disaster.

The key to success, as always, lies in a disciplined, unemotional, and probability-based approach. It means recognizing the bearish pattern in the S&P 500 while knowing the exact level ($6430) that would negate it. It means understanding the risk highlighted by tech's historic market weighting. It means identifying high-probability day trade setups in beaten-down names like AI and MNDY, while respecting the fundamental damage that makes them unsuitable for long-term holds. And above all, it means remembering that the charts, not our hopes or feelings, are in charge.

As Gareth concluded, "The good thing about technical analysis, I found that if you do it right, you can get your win rate to about 75% or greater... Can you win three out of four times? I do believe so if you follow the charts." By focusing on price, pattern, and time, and by trading the probabilities, investors can confidently navigate the opportunities and risks that lie ahead.