My Trading Game Plan Revealed - 12/11/2025: Fed QE Surprise Sparks AI Debt Bomb Fears and Oracle Collapse

In a move that sent ripples through the financial world, the Federal Reserve has unexpectedly reintroduced quantitative easing, leaving investors to grapple with a critical question: What does the Fed know that we don't? This shocking policy reversal, combined with a stunning 14% collapse in Oracle shares post-earnings, has cast a shadow over the market's recent rally. In this morning's My Trading Game Plan show, Gareth Soloway, Chief Market Strategist at Verified Investing, dissected these developments, revealing a potential "debt bomb" in the AI sector and highlighting the technical levels that could define the market's next major move.

The Fed's QE Surprise: A Signal of Hidden Distress?

Quantitative easing (QE) is a powerful monetary tool, a financial bazooka typically reserved for times of crisis, as seen in 2008. It involves the central bank buying government bonds to inject liquidity into the financial system, effectively printing money to stimulate the economy. Its sudden reintroduction in what is supposedly a stable economic environment is, therefore, deeply unsettling.

Gareth framed the situation perfectly, stating, "When you say oh you know we're not going to cut rates but wait let's introduce quantitative easing again, that's a huge signal to investors that something is amiss, that they are seeing something in the data behind the scenes that most investors are not aware of."

This isn't just abstract economic policy; it has tangible underpinnings. Credit card defaults have surged to levels not seen since 2011. The repo market, a critical hub for short-term lending between financial institutions, has shown signs of stress. The Fed's action suggests they see these cracks not as minor fissures but as potential precursors to a much larger problem. By re-engaging QE, they are proactively attempting to patch a dam they fear is about to break. For investors, this raises a crucial paradox: the Fed is providing a safety net, but the very act of deploying it confirms that we are walking a high wire.

Oracle's Collapse and the "AI Debt Bomb"

The market's reaction to Oracle's earnings report provides a perfect case study for the anxieties simmering beneath the surface. The stock plummeted 14%, falling from a close near $223 USD down to $193 USD pre-market. The sell-off wasn't triggered by poor performance—earnings were solid, and they announced new high-profile customers like Nvidia and Meta. The panic was ignited by one thing: debt. Oracle announced plans to increase its capital expenditures, meaning it would be taking on even more debt to build out its infrastructure.

This event shines a spotlight on a much larger, systemic issue Gareth has dubbed the "AI Debt Bomb." The narrative goes like this: hyperscalers and AI companies are borrowing billions of dollars to purchase cutting-edge chips from Nvidia and others. On their balance sheets, they are depreciating the value of these chips over a seven-year period. However, the brutal pace of technological advancement means these chips become largely obsolete in just two to three years.

Imagine taking out a seven-year loan on a car that you know will be worthless in two. This is the financial reality for many in the AI space. A highly profitable behemoth like Oracle can manage this debt burden; its massive cash flows can service the interest payments. As Gareth explained, this is why he sees Oracle as an attractive investment at lower levels. The real danger lies with the scores of newer, unprofitable AI players who have taken on similar debt loads without the cash flow to support them. When they are forced to upgrade their hardware in two years, they will need to take on new loans to pay for new chips while still servicing the debt on the old, now-obsolete ones. This is a house of cards, and Oracle's sell-off shows that the market is finally starting to worry about who is at the bottom.

The Charts That Foreshadowed the Fed's Move

While the Fed's QE announcement was a shock to many, the charts were already dropping hints. This is where the power of technical analysis becomes undeniable, transforming it from a simple charting exercise into a tool for predicting macroeconomic outcomes.

Two charts, in particular, told the story ahead of time:

1. The 10-Year Treasury Yield: Leading into the Fed decision, the 10-year yield had rallied directly into a major resistance level. In technical analysis, resistance is an area where selling pressure is expected to overcome buying pressure, pushing the price down. The yield hitting this ceiling suggested that a force was about to push rates lower. A more dovish Fed is precisely that force.
2. The US Dollar Index (DXY): The dollar had formed a textbook bear flag pattern. This pattern consists of a sharp downward move (the flagpole) followed by a slight upward consolidation (the flag). It typically resolves with another sharp move down. A dovish Fed, signaling easier monetary policy and more liquidity, weakens the dollar.

As Gareth marveled, "amazingly the chart was able to guide us to actually thinking okay the Fed could be a little bit more dovish." The charts were not reacting to the news; they were anticipating it. By analyzing the price action, traders could deduce the most probable outcome of the Fed meeting, demonstrating that logic and charts can often see through the market's hype and narratives.

A Market of Limited Upside and Significant Risk

Despite the underlying concerns, the S&P 500 remains within a massive, multi-year parallel channel. While this structure is technically intact, the risk-to-reward ratio for new long positions has become incredibly skewed. From yesterday's close, a rally to the top of this channel represents a potential gain of only about 1.33%. With today's lower open, that might stretch to 1.6%, perhaps 2% at most.

Conversely, the downside risk is substantial. A simple pullback to the lows seen just a few weeks ago would constitute a 5% drop. A move to the bottom of the channel would be far more severe. This asymmetry is critical for traders. When your potential reward is dwarfed by your potential risk, taking on new, aggressive long positions becomes a low-probability bet. This is the kind of environment where disciplined traders protect capital and wait for a more favorable setup, rather than chasing the last few percentage points of a tired rally.

The Semiconductor Ceiling: A Data-Driven Approach to Tops

The semiconductor sector, represented by the SMH ETF, has been the undisputed leader of this market cycle. However, it too is flashing warning signs as it approaches a major double top. To understand the potential ceiling, we can turn to historical data.

Over the past decade, the SMH has consistently peaked when its price extends 102% above its 200-week moving average. This happened in 2021, leading to a 45% drop. It happened again in early 2024, leading to a 40% drop. We recently touched that 102% extension level again and pulled back. While the 200-week moving average has crept higher, a new 102% extension would only take the SMH to around the $385 USD level—only marginally higher than its current price.

Could the market push beyond this historical limit? Absolutely. But a data-driven approach requires us to respect historical precedents until they are proven otherwise. As Gareth emphasized, "when we're data-driven investors we look at history as our guide… we must go with that until it's proven otherwise. Otherwise we're just going with emotion." For now, the data suggests that, much like the broader S&P 500, the upside in the semiconductor space is severely limited.

Actionable Levels and Setups to Watch

Amidst the macro uncertainty, specific charts are presenting clear technical levels for potential trades:

• Oracle (ORCL): Following its massive drop, two key support zones emerge. The first is around $189 USD, a level defined by a previous major pivot low and a gap window. Below that, an epic support level exists at the $177 USD gap fill. These are the areas where a technical bounce becomes highly probable.
• Netflix (NFLX): The streaming giant is approaching a multi-year support level just below $90 USD, connecting the lows from 2019 and the COVID crash in March 2020. A break below $90 USD could trigger a short-term swing trade entry for a bounce. However, Gareth was clear this is a tactical trade, not a long-term investment in a market he views as a "house of cards."
• Bitcoin (BTC): Bitcoin is increasingly acting as a leading indicator for risk assets. Yesterday, when the stock market initially rallied on the Fed news, Bitcoin popped but failed to hold its gains—a subtle warning that the rally wouldn't last. It remains in a bear flag formation, with a potential for a year-end push towards $100,000 before a more significant correction.
• Natural Gas (UNG): After calling the top perfectly, Gareth is now eyeing a long entry for a quick bounce. The recent pullback has brought natural gas to a key retrace level after piercing $4.20 USD, offering a potential short-term trade back towards the $4.40 to $4.50 USD area.

Conclusion: Navigating a House of Cards

The market is sending conflicting signals. On one hand, the Federal Reserve is stepping in with liquidity. On the other, their very action confirms that significant risks are bubbling under the surface. The collapse of Oracle on debt fears has exposed the potential fragility of the AI-driven rally, a rally built on a mountain of debt with a rapidly depreciating asset base.

Technical analysis reveals a market with a poor risk/reward profile, where major indices and leading sectors are pressing against historical ceilings with limited upside. While short-term trading opportunities exist for the nimble and disciplined, the broader message is one of caution. The "house of cards" may not collapse tomorrow, but the Fed's latest move is a clear sign that they see a worrying wobble in the foundation. In this environment, a logical, data-driven approach is not just an advantage; it's a necessity for survival.