TRADING GAME PLAN REVEALED: Market Correction, AI Risks & Bubble Stocks

The markets are in free fall, marking the third consecutive down day and confirming the correction that many technical indicators have been signaling. Just days ago, the mood was euphoric, with bubble-like activity in speculative names and major indices testing critical overhead resistance. In this morning's TRADING GAME PLAN REVEALED, Gareth Soloway, Chief Market Strategist at VerifiedInvesting.com, connected the dots between the warning signs he highlighted earlier in the week and the sharp sell-off we are now witnessing. This article will delve deeper into the anatomy of this correction, the paradoxical economic data fueling it, and the key technical levels that will define the market's next move.

The Writing on the Wall: Signals of a Correction

A successful trader learns to recognize when the market's narrative diverges from its underlying technical reality. While euphoria was rampant, several key indicators were flashing red, suggesting a pullback was imminent. As Gareth noted, “just a few days ago, I went over multiple things that showed me a correction in the markets was likely at hand.” These weren't vague feelings; they were specific, data-driven observations.

The most compelling signal was a historical parallel to the COVID collapse. The rebound from the 2020 lows, over a six-month period, was precisely a 1.8x multiple of the initial drop. Incredibly, the current rally off the "Liberation Day" lows has traced an identical pattern, hitting that same 1.8x multiple in exactly six months. History doesn't always repeat, but it often rhymes, and this fractal pattern was a powerful warning.

Adding to this, the Nasdaq 100 (QQQ) ran directly into a major ascending trendline that extends back to the COVID lows. This wasn't just any trendline; it has been a pivotal level for the market, marking points of major reversals. Previous encounters with this line resulted in drops of 15% and 25%, respectively, establishing it as formidable resistance.

Finally, the market was showing classic signs of late-stage speculative fever.

Oklo (OKLO): A pre-revenue nuclear energy company, saw its stock surge nearly 100% in a month on pure hype related to AI and data centers.
NVIDIA (NVDA): Announced a deal to lend OpenAI $100 billion, which would then be used to buy NVIDIA chips—a circular arrangement that raised eyebrows.
Oracle (ORCL): Executed a massive $15 billion debt offering.

These events, coupled with stretched valuations, created a precarious environment. “If you're an investor and you're looking at valuations on the market, if you're not a little concerned, then you're a little crazy, frankly,” Gareth cautioned. This backdrop meant that hedge funds and institutional players were crowded on the long side, creating a mountain of potential selling pressure waiting to be unleashed at the first sign of fear.

The Economic Data Paradox

In a bizarre twist, a slate of overwhelmingly positive economic data this morning only accelerated the market's decline. This is the paradox of a market addicted to cheap money: good news is bad news.

GDP: Came in at a robust 3.8%.
Durable Goods: Surged 2.9% versus a forecast of -0.3%.
Jobless Claims: Remained low at 218,000.

In a healthy economic environment, these numbers would be cause for celebration. But in the current landscape, they have the opposite effect. As Gareth explained, “the markets are addicted to cheap money. So interest rates are spiking because of this good economic news today. And the markets don't like it frankly.”

Strong economic data reduces the urgency for the Federal Reserve to cut interest rates. The 10-year Treasury yield spiked on the news, as the bond market priced in a lower probability of aggressive rate cuts. This is a critical headwind for equities, especially high-valuation growth stocks, as higher yields make future earnings less valuable in today's dollars.

This dynamic highlights a fundamental disconnect. The real economy, according to these metrics, is performing well. However, the stock market, which has been fueled by a decade of low interest rates and quantitative easing, interprets this strength as a threat to the flow of easy money it has come to depend on.

The AI Economy: A Double-Edged Sword

Digging deeper into the GDP numbers reveals a startling concentration of risk. According to Gareth's analysis, the AI sector—including capital expenditures and related economic activity—now accounts for over half of the entire GDP of the United States. This boom has been the primary engine carrying the economy forward.

While this is a testament to the transformative power of AI, it also represents a systemic vulnerability. The U.S. economy is now effectively making a single, massive bet on the perpetual growth of one sector.

“The reason why that's scary is that if we ever saw, if we ever see a slowdown, which inevitably will happen, it's almost a guaranteed recession,” Gareth warned. As long as the AI spending spree continues, it can mask weakness in other areas and keep the headline GDP number strong. However, should that spending slow, the concentration is so immense that it would be nearly impossible to avoid a significant economic contraction. This creates a precarious "all or nothing" scenario for the broader economy.

Chart Breakdowns: Where There's Smoke, There's Fire

The technical damage is becoming evident across all major indices, with multiple charts confirming the bearish thesis.

Nasdaq 100 (QQQ): The weekly chart of the QQQ provides the clearest picture of the resistance the market has hit. The trendline connecting the COVID low and subsequent pivot lows acted as a perfect ceiling. After a 15% drop and a 25% drop from the last two touches, Gareth poses the critical question: “The big question you got to ask yourself is what's the percentage correction we're going to see off of this hit.” While the exact percentage is unknown, the historical precedent at this level suggests a significant pullback is highly probable.

Dow Jones Industrial Average: The Dow is exhibiting a classic and potent bearish combination. It recently formed a topping tail candle right at the peak of a rising wedge pattern. Now, it has broken below the wedge's lower trendline. A breakdown from a wedge is a bearish signal on its own. A topping tail is also a bearish signal. When they occur together, the probabilities stack up. As Gareth teaches, “when you add in more factors, the probabilities go up and up and up. And it starts to become, you know, essentially where there's smoke, there's fire.”

S&P 500: The S&P 500 is also showing weakness after kissing the underbelly of a key trendline connecting the lows of 2023, 2024, and January 2025. This "kiss of death" from below the trendline often precedes a significant move lower, and the current price action is validating that signal.

A Case Study in Euphoria: The Collapse of Oklo

To understand the psychology of a market top, look no further than Oklo (OKLO). This stock became the poster child for the speculative mania that precedes a correction.

“This is a picture perfect meme stock that when the music stops, it will collapse,” Gareth stated on Monday, warning investors of the extreme risk. The company has no revenue and won't even break ground on its first plant until 2030, yet its association with Sam Altman and the AI energy narrative sent its valuation soaring into the tens of billions.

The collapse was as swift as the ascent was irrational. Yesterday, the stock opened at a new all-time high before reversing to close down 8%. Today, it plummeted another 20% at the lows. This price action is a textbook example of a bubble bursting. It echoes the dot-com era, where companies with no business plan could add ".com" to their name and achieve astronomical valuations before inevitably crashing back to earth.

For traders, the wreckage can present opportunities. Gareth identified a potential day trade bounce level at the gap fill around $105.00 USD, but the more significant swing trade support lies much lower, around $92.50 USD, where a key trendline sits.

The Most Powerful Moves Come from Failed Moves

One of the most important lessons in trading is that failed patterns often lead to the most explosive moves in the opposite direction. The semiconductor ETF (SMH) is providing a live-action test of this principle.

The SMH recently broke out above a key up-sloping trendline and confirmed the breakout with a close above it. This drew in breakout buyers and forced short-sellers to cover. Now, the price is falling back to that trendline. If it breaks back below and reconfirms the breakdown, the result could be a catastrophic sell-off.

Gareth explains the psychology: “The reason that happens is because people get so excited about the breakout... When it fails, you have all these people that piled in that are panicking and they're dumping. And then the shorts are coming back and attacking it like crazy.” This creates a perfect storm of selling pressure. This is a critical chart to watch, as the semiconductor sector has been a market leader.

Other stocks are showing similar topping signals:

Goldman Sachs (GS): Falling hard after the topping tail highlighted yesterday.
Caterpillar (CAT): Breaking down from a trendline with a topping tail, making it a favorite short setup.
AppLovin (APP): After a ten-day parabolic run on news of its S&P 500 inclusion, it is finally rolling over and looks poised to trade below $600.00 USD.
Robinhood (HOOD): Starting a correction with major support not seen until the $104.00-$105.00 USD area.

Conclusion: Navigating the Volatility

The market is currently navigating a complex and volatile period where good news is bad, speculative bubbles are bursting, and key technical levels are breaking. The warning signs were present for those willing to look past the euphoric headlines and focus on the charts and data. The ongoing correction is a logical consequence of over-extended valuations colliding with a shifting interest rate environment.

For disciplined traders, this volatility is not a source of fear, but of opportunity. Clear levels are emerging on indices, individual stocks, and even cryptocurrencies like Ethereum, which has a high-probability buy setup approaching at the $3,800.00 USD level. By focusing on multi-factor analysis, managing risk, and understanding the psychology that drives market extremes, traders can confidently navigate the days and weeks ahead. The game plan is clear: respect the technical signals, identify high-probability setups, and let the market come to you.