Trading Game Plan Revealed - 2025-09-30: Market Warning

As the U.S. government teeters on the brink of a shutdown, the stock market finds itself in a precarious position. While history suggests such political impasses are often minor market events, the current landscape of inflated valuations and widespread investor complacency could create a recipe for an outsized reaction. In this morning’s Trading Game Plan, Gareth Soloway, Chief Market Strategist at Verified Investing, peeled back the layers of the market to reveal critical warning signs, sector-specific stress points, and the psychological traps that traders must avoid.

This article delves deeper into the key technical levels and market dynamics Gareth identified, providing expanded context on why this moment may be different and how disciplined traders can navigate the uncertainty ahead.

A Market on Edge: Complacency Meets a Potential Catalyst

The S&P 500 has been in a state of persistent, low-volatility ascent for months, conditioning investors to buy every minor dip. This environment of extreme complacency is, paradoxically, one of the most dangerous. As Gareth noted, the market’s recent behavior is a classic symptom of this mindset.

"Last week for instance we had a pullback of three days in a row. But it totaled only 1%. And then Friday we saw a gain of about half a percent and yesterday a gain, a small gain of about a quarter percent… that can tell you that the markets are getting complacent. Investors are starting to assume there can never be a big drawdown again."

This psychological backdrop is crucial as we face a potential government shutdown. While past shutdowns have rarely caused major market declines, Gareth warns that the current context of trading near all-time highs at "inflated bubble levels" means we must take the threat seriously. The charts are providing a clear line in the sand. A tightening wedge pattern on the S&P 500 has contained the price action, but the lower boundary of this pattern is the ultimate test. A confirmed close below 6,600 on the S&P 500 would signal that the game is on for the bears. Until then, the market remains technically safe, albeit with flashing yellow lights.

The Long-Term Warning Shot: A Multi-Year Divergence

Zooming out from the daily price action reveals a more ominous, long-term signal that technicians are watching closely. The monthly chart of the S&P 500 shows a significant negative divergence on the Relative Strength Index (RSI) that has been building for years.

"You go back to 2017 to 2018… look at how the RSI has continued to go lower and lower, high, lower high, but new all time high on the S&P, lower high, but new all time high at that point, and then lower high even now on the RSI and new all time high."

A negative divergence occurs when the price of an asset makes a new high, but a momentum indicator like the RSI fails to do so, instead making a lower high. This indicates that the upward momentum is waning, even as the price continues to drift higher. While a monthly divergence is not a signal for an immediate crash, it is a powerful indicator that a significant market event could be on the horizon. As Gareth explained, this type of signal often precedes not just a simple correction, but a potential bear market that could play out over one to two years. It’s a compelling reason for investors to heed his philosophy: "When everyone else is going crazy over greed, I get more cautious and conservative."

Nasdaq's Moment of Truth at a Historic Trendline

While the S&P 500 is still contained within its pattern, the tech-heavy Nasdaq 100 (tracked by the QQQ ETF) has already arrived at its moment of truth. Yesterday, the index pushed up to and was decisively rejected from a powerful trendline that has marked major market tops in recent years.

The history of this trendline is what makes the current setup so compelling and concerning. The line connects the March 2020 low, the June 2024 high (just before a major collapse), and the subsequent high before the "Liberation Day" sell-off. The market’s reaction at each touchpoint has been severe.

"The first time you hit this trend line, you got a 15 percent correction. The second time you got a 26 percent correction. And so as a technician, I have to be on high alert that this isn't just a pause or maybe a two or three percent pullback. This could be something larger."

Making matters worse, the market is even more extended now than it was during the previous two touches. This historical precedent suggests that the current rejection could be the start of a significant corrective move of 10-20% or more. The weakness in the Nasdaq, the market’s primary growth engine, serves as a leading indicator that traders cannot afford to ignore.

The AI Domino Effect: Following the Money to the End of the Line

One of the most insightful themes from this morning’s show was the analysis of sector rotation within the AI trade, which Gareth described as a chain reaction of falling dominoes. This progression offers a classic roadmap of a maturing bull run, where money flows from the highest quality names to the most speculative, "stretch" plays.

The sequence has been clear:

The Pure-Plays: The initial frenzy was in the "best of the best," like NVIDIA.
The Data Centers: The next wave lifted the companies building the infrastructure for AI.
The Software Layer: Money then rotated into software giants like Oracle, which saw one of the most explosive earnings reactions in history—a 40% single-day surge—only to see the entire move reverse in the following weeks.
The Stretch Plays: Now, the capital is flowing into the final dominoes: the memory chip makers.

Companies like Western Digital (WDC), Seagate (STX), and SanDisk (SNDK) have experienced parabolic, near-vertical moves in recent months. WDC, for example, has run from approximately $28.00 USD to $120.00 USD since April. While these are legitimate companies, their connection to the core AI narrative is more tenuous. This is precisely the kind of late-cycle behavior that signals exhaustion.

"When you're looking at bull markets, it usually starts with the pure bread… And finally, you get to these kind of ones where you're like, OK, it's a little bit of a stretch that this is really an AI play… That's when you're getting to the end of a run in a market or in a sector."

Furthering this concern is the technical breakdown in a key AI player, Broadcom (AVGO). The stock is rolling over and testing a critical support confluence around $317.00 USD, where a pivot high and an upsloping trend line meet. A break of this level would be a major red flag for the entire AI sector.

Blurring the Lines: Robinhood and the Psychology of a Bubble

Adding to the evidence of market froth is the recent news from Robinhood. The popular brokerage announced it will begin offering betting on political outcomes and sporting events, further blurring the line between investing and outright gambling.

This development is significant from a market psychology perspective. Market tops are often characterized by speculative excess, a "get rich quick" mentality, and the introduction of novel ways for retail participants to take on risk. By integrating stock trading with sports betting on a single platform, the distinction between long-term wealth creation and a short-term gamble is eroded.

"It still concerns me when you're beginning to have an ‘everything app’ where you can invest in stocks and you can also say, oh, well, you know, I don't see a stock I like today… But instead, I'll bet on this football game… Is that healthy essentially for the market?"

While championing the individual’s right to choose, Gareth rightfully points out that this trend, combined with the "meme craze," is a symptom of a market environment that may be losing its fundamental footing. It is another piece of the puzzle suggesting that risk appetite has reached a speculative peak.

The Trader's Edge: Why Confirmation is Everything

Amidst all the market noise, Gareth brought the focus back to a core principle that separates consistently profitable traders from the rest: the discipline of waiting for confirmation. He used the recent price action in Bitcoin as a perfect case study.

A head and shoulders pattern—a classic bearish formation—appeared to be forming on Bitcoin’s chart. Many traders likely jumped the gun and went short as the price dipped below the neckline. However, the breakdown was never confirmed with a second consecutive close below the level. The result? The pattern failed, and the price ripped higher.

"Confirmation is the difference between 50/50, maybe 55/45 chance that it's a real breakdown versus if you get confirmation, the odds really heavily, like 75 percent, 80 percent favor it is a real breakdown."

This lesson, born from 26 years of market experience, is invaluable. Textbooks can show you a pattern, but only practice teaches you the nuances of probability. This same principle is now in play with Gold, which has pushed above a key parallel channel but has yet to confirm the breakout. Is it a legitimate move towards $4,000.00 USD, or a bull trap designed to lure in the last buyers before a reversal? Only confirmation will tell.

Conclusion: Navigating a Market at an Inflection Point

The market is sending a complex mix of signals. On one hand, the S&P 500 remains in a bullish structure, holding above its key support at 6,600. On the other hand, the Nasdaq has been rejected at a historically significant resistance level, long-term indicators are flashing warnings, and signs of late-cycle speculative froth are becoming more apparent.

The impending government shutdown serves as a potential catalyst that could force the market to resolve its current indecision. For traders, this is not a time for greed or fear, but for discipline and vigilance. The key is to know your levels, understand the broader psychological and sector dynamics at play, and, above all, wait for confirmation before committing capital. By following a logical, probability-based approach, traders can confidently navigate the opportunities and risks that lie ahead.