My Trading Game Plan Revealed - 12/04/2025: Semiconductor Bubble Warning, AI's $8T Cost and Japan Bond Threat

In this morning's My Trading Game Plan, Gareth Soloway, Chief Market Strategist at Verified Investing, navigated a market landscape rife with contradictions. From whiplash-inducing news on AI to a critical historical warning signal flashing in the semiconductor sector, the session provided a masterclass in separating hype from reality. As the market digests conflicting narratives and approaches a pivotal year-end window, we’ll dive deeper into the key themes, providing the context and analysis needed to understand the forces at play.

The Semiconductor Chart That Screams Caution

While the narrative around artificial intelligence remains euphoric, a critical long-term chart for the semiconductor sector is flashing a warning sign that has preceded massive corrections in the past. Gareth highlighted the weekly chart of the SMH (VanEck Semiconductor ETF), focusing on its extension from the 200-week moving average. This isn't just a random indicator; it's a measure of how far and fast the sector has run from its long-term base.

“To understand moving averages, moving averages are referred to in technical analysis as home base, meaning that you get away from home base, but eventually you have to come back to home base… It's almost like a tether. You can stretch it. The rubber band can go, go, go, go, go, but at some point it comes back to home base.”

This "home base" concept is crucial. Historically, when the SMH has stretched to 102% above its 200-week moving average, a powerful snap-back has occurred.

• In 2021, it hit a 102% extension and subsequently corrected by 45%.
• In 2024, it reached the same 102% extension and then fell by 40%.

Currently, the sector has once again reached this critical 102% extension level. While bulls may point to the recent two-week bounce as a sign of strength, a closer look at the historical precedent from 2024 shows an almost identical pattern: a three-week bounce before the larger decline resumed. The current two-week bounce, as Gareth noted, has candles that are nearly identical in size to that prior bounce, suggesting this could be a deceptive pause before the next leg down. This historical symmetry provides a powerful, data-driven reason for caution in a sector that many assume can only go up.

An $8 Trillion Reality Check for the AI Hype

Supporting the bearish technical picture is a dose of fundamental reality from an unlikely source: the CEO of IBM. While the market prices in limitless profits from AI, the logistical and financial hurdles are staggering. Gareth highlighted a recent article where IBM's CEO laid out the stark economics of building the necessary AI infrastructure.

The core argument is that the cost of building out the data centers, energy grid, and infrastructure required to power the AI revolution is so immense that achieving a positive return on investment is nearly impossible at current costs. The CEO’s "napkin math" suggests an $8 trillion USD capital expenditure is needed. The interest payments alone on that debt would amount to $800 billion USD annually—a figure that profits would have to exceed just to break even.

“He's saying that to build out the energy costs, the infrastructure, there's such a massive investment. There's almost no way they can make the returns that they're promising investors… And so while the market's living in this fantasy land right now, it's very, very important for us to kind of be more realistic and understand this is a pipe dream.”

This analysis cuts through the market narrative. It suggests that the hyperscalers depreciating AI chips over seven years, when their useful life is closer to two or three, is just one of many financial maneuvers being used to paint a rosier picture than reality. While AI will undoubtedly be transformative long-term, the short-to-medium term profitability that the market has priced in may be based more on fantasy than sound financial footing.

A Market Decision Point: Santa Claus Rally or Sell-Off?

While the semiconductor sector sends warning flares, the broader S&P 500 chart presents a more ambiguous, and potentially bullish, short-term picture. The index continues to trade within a large parallel channel on the weekly chart, which in theory, leaves room for a push to new all-time highs into the end of the year, potentially even touching the 7,000 level.

Gareth has identified a crucial window for the market: this week and next. If a significant sell-off doesn't materialize by the end of next week, the probability shifts in favor of a "Santa Claus rally." This phenomenon is often driven by lighter volume as institutional traders take vacation, allowing retail sentiment and portfolio "window dressing" by funds to push the market higher.

The daily chart is beginning to form a consolidation pattern that, if it matures, could be interpreted as a bullish setup for that final year-end push. This presents a fascinating divergence. The tech-heavy Nasdaq 100 (QQQ), on the other hand, is showing more weakness. It has broken a key uptrend line and is now retesting that line from below. In technical analysis, this is known as a "retrace to the scene of the crime," a classic setup where former support turns into new resistance, often leading to a rejection and a move lower. This disparity between the broad market and the tech sector will be a key dynamic to watch.

The Global Threat Hiding in Plain Sight

One of the biggest potential catalysts for a market disruption isn't coming from AI or the Federal Reserve, but from Japan. The Japanese 10-year government bond yield is soaring, nearing 1.95%. In a vacuum, this might not seem alarming, but in the context of Japan's economy, it's a ticking time bomb.

Japan has a staggering debt-to-GDP ratio of 240%. For years, it has managed this debt through ultra-low, and even negative, interest rates. The rapid rise in yields dramatically increases the cost of servicing that debt, putting immense strain on their financial system.

The bigger issue for global markets is the unwinding of the "Yen carry trade." For decades, investors have borrowed Yen at near-zero interest rates and invested that capital in higher-yielding assets, like U.S. stocks and bonds. This has injected an estimated $10 trillion USD of excess liquidity into the global system. As Japanese rates rise, that trade becomes unprofitable and unwinds, effectively sucking that liquidity out of the market. Gareth has set a clear line in the sand: “My break point is going to be 2%. I think if we hit 2%, the ripples start really going through the US and the US bond markets.” This is a major macro threat that is flying under the radar of most investors.

Actionable Setups in a Volatile Market

Amidst the big-picture analysis, earnings season continues to provide specific trading opportunities for those who know where to look.

• Snowflake (SNOW): After falling about 7-8% on earnings, Snowflake presents a clear example of differentiating between a day trade and a swing trade. A potential day trade bounce level was identified at the $230 to $231 USD support zone. However, for a higher-probability swing trade, a much deeper pullback to fill the gap at $200 USD, or even down to $179 USD, would be required.
• Netflix (NFLX): The stock dropped 5% yesterday not on earnings, but on news of its attempts to acquire competitors. This is fundamentally significant, as it signals that the company’s era of explosive organic growth may be over. The chart reflects this precariousness, as the stock is testing a massive, multi-year trendline dating back to 2023. A confirmed break below this line would be a major technical breakdown, potentially signaling a move down to the low $80s.
• Tesla (TSLA): The electric vehicle giant is coiling in a tight wedge pattern, with resistance at $466 USD and support around $400 USD. While these patterns can break in either direction, they carry a slight bullish bias of around 55-60%. A confirmed breakout above $466 USD would be the trigger for a potential year-end rally.

The Patience and Discipline of a Predator

Perhaps the most important lesson from today's analysis is not about a specific chart, but about the mindset required to trade them successfully. Successful trading is not about constant action; it's about disciplined inaction until the highest probability opportunity presents itself.

“The best traders in the world are like lions in the bush. We lay in wait, we continue to watch until we pounce. If we pounce too early, we go hungry, we miss the trade, right, or we get in the bad trade. If we pounce too late, we miss the trade as well. We go hungry. The key is patience and discipline are your avenue towards financial success.”

This analogy perfectly captures the essence of professional trading. It involves doing the analytical work to identify key levels and high-probability setups, and then having the patience to wait for the market to come to you. By combining logic-based technical analysis with unwavering discipline, it's possible to achieve a high win rate over time.

Conclusion: Navigating the Year-End Fog

As we head into the final weeks of the year, the market is sending a complex mix of signals. A powerful, historically-backed warning sign is flashing in the semiconductor sector, supported by fundamental questions about the true profitability of the AI boom. Simultaneously, the broader market structure leaves the door open for a final, euphoric Santa Claus rally. Looming over everything is a significant macro risk from the Japanese bond market that could disrupt global liquidity.

Navigating this environment requires shedding narratives and focusing on the charts and probabilities. By identifying key technical levels, understanding the historical context, and exercising the patience of a lion, traders can position themselves to capitalize on opportunities while protecting themselves from the market's inherent risks.