Trading The Close Market Recap - 01/10/2025: AI & Data Center Mania, B

Despite the looming threat of a government shutdown, the market’s runaway trains just keep rolling. In a stunning display of sector-specific strength, AI and data center stocks surged, propelling the S&P 500 to yet another new high. While broader market indices continue their impressive ascent, pockets of extreme euphoria are creating setups that require discipline and caution. In today’s Trading The Close Market Recap, Pro Trader Drew Dosek of Verified Investing dissected the powerful moves, identified critical patterns, and warned against the dangers of chasing parabolic trends.

The Indomitable Bull: S&P 500 and Nasdaq Defy Gravity

The market continues to shrug off macroeconomic concerns, with the S&P 500 pushing into uncharted territory. For weeks, a key inclining trendline has served as the ultimate line of demarcation between bullish continuation and a potential correction. As of today, that line remains firmly intact, with the market moving further away from it.

"This is the line in the sand for when the market starts to have a correction," Drew noted. "We don't have a break yet. Matter of fact, we're moving further away today. So the markets are for now safe from any sort of downturn."

Today’s intraday price action was a masterclass in bullish resilience. After an initial gap down, the S&P 500 came down to test the bottom of a key parallel channel almost to the penny before buyers stepped in aggressively, driving the index to new highs for the day. This behavior signals immense underlying strength and a "buy the dip" mentality among institutions. The next major upside target, should this momentum continue, is the 50% line of this larger parallel channel, located around the 7,000 level.

While the S&P 500 is holding above its critical support, the tech-heavy Nasdaq 100 (QQQ) is barreling through what was previously a key resistance trendline. This breakout has opened up a path toward the top of a massive parallel channel that has contained price since 2021. The ultimate target at the top of this channel sits near 662—a staggering 20% higher from current levels. However, a straight-line move is highly improbable. The Relative Strength Index (RSI), a key momentum indicator, is already in overbought territory in the 70s. A more logical sequence would be a pullback to retest support before a potential next leg higher.

"What makes more sense to me is that we have a pullback likely down to this 50 percent area of the parallel channel," Drew explained, highlighting potential support zones around 546 and 539.

Bitcoin on the Brink: A Major Pattern Awaits Confirmation

Away from the equity markets, a massive technical setup is brewing in Bitcoin that could have significant implications for the entire cryptocurrency space. A classic inverse head and shoulders pattern—a traditionally bullish reversal formation—has been developing on the chart. This pattern is defined by a central low (the head) flanked by two slightly higher lows (the shoulders), all sitting below a common resistance level known as the neckline.

The critical event to watch is the daily close at 8:00 PM Eastern Time. As Drew emphasized, this specific time is when the official daily candle closes for cryptocurrencies, providing the definitive price point for technical analysis.

"So tonight at 8 o'clock, be watching the price closes above $117,300 to $117,400," he advised. "As long as we're above that, that would trigger this inverse head and shoulders pattern with a targeted measured move up here at $127,459."

What makes this target particularly compelling is its confluence with another major trendline drawn from a pivot high in December of the previous year. When a pattern’s measured move target aligns perfectly with a pre-existing technical level, the probability of that target being reached increases significantly. The recent buying interest in crypto may be partly fueled by the government shutdown, as investors seek assets outside the traditional financial system during times of uncertainty. A confirmed breakout in Bitcoin would likely lift the entire altcoin market with it.

The AI Data Center Mania: Chasing Runaway Trains

The main story of the day was the explosive move in stocks related to AI and data centers. While this strength is driving the semiconductor sector (SMH) and the broader market, it has also created extremely overbought conditions that demand a disciplined, patient approach.

Micron Technology (MU) provided a textbook example of a parabolic breakout. The stock launched with a massive green candle, blasting through a key resistance area after a week of consolidation. While this is a sign of immense strength, the RSI is deeply overbought. For traders, this is a time for caution, not chasing.

"I can't be a buyer up this high, because I know all too well rapid moves up are met with rapid moves down," Drew warned. A prudent entry would require a significant pullback, potentially back down to the $150.00 USD range, rather than buying into the current euphoria near $178.80 USD.

Seagate Technology (STX) presents an even more extreme case. The chart is, as Drew described, "incredible," with the weekly RSI pushing an astronomical 89.68. The stock is currently trading at $257.00 USD, a full 60% above its 20-week moving average, which sits near $160.00 USD. This level of extension is historically unsustainable. While the stock could squeeze higher toward round numbers like $275.00 USD or $300.00 USD, the risk of a sharp reversal is immense. The logical place for price to eventually gravitate back toward is the major inclining trendline support around $207.00 USD. Chasing the stock here is a low-probability, high-risk endeavor.

Contrasting Fortunes: Key Tech Setups to Watch

While some tech names are flying, others are presenting very different technical pictures, offering both cautionary tales and potential opportunities.

Meta (META) serves as a preview of what can happen when a major inclining support trendline breaks. The stock broke down, consolidated, and then fell further, carving out a head and shoulders topping pattern. The measured move target for this pattern points to significant further downside, with a target of $656.45 USD. This chart is a crucial reminder that even the strongest stocks are not immune to technical breakdowns.

SMCI stands in stark contrast to the overbought names. The stock has been under a "dark cloud" due to accounting issues and accusations of violating trade rules with China. This negative sentiment has kept investors away, but the technicals are telling a potentially explosive story. A massive, multi-month inverse head and shoulders pattern has formed on the chart.

"Guys, this is an inverse head and shoulders pattern. It's got a targeted major move all the way up here at $109.15," Drew revealed. "Yes, SMCI has been in a gray cloud for a little over a year. But guys, if this pattern results in a huge move up, you heard it here first. This is looking like a potential 100% increase in gain on the stock."

This setup in SMCI represents the polar opposite of chasing Seagate. It’s an opportunity to potentially enter a stock that is unloved and overlooked but has a technical pattern suggesting a 100% upside move if it can resolve its fundamental issues.

The Power of a Single Line: Lessons from the Energy Sector

Amid the complexity of AI and market psychology, the chart of U.S. Oil offers a powerful lesson in the simple elegance of technical analysis. A single declining trendline drawn on the chart has dictated price action for months, acting as both formidable resistance and reliable support.

"This is just purely beautiful technical analysis, all derived from one line drawn on the chart," Drew said, reflecting on its accuracy. "See the power of this stuff when you're able to draw these trend lines and analyze charts. You really get opportunities to make money over and over and over again doing the simple thing that I learned when I was a kid watching Pee Wee Herman, connecting the dots."

This principle—that simple, well-drawn lines can define major market turning points—is a cornerstone of successful trading. Similarly, in Natural Gas, a rapid three-day surge has created an overextended condition. Instead of chasing, the disciplined approach is to wait for a pullback to a key support trendline around $3.46 USD, which would offer a much higher-probability entry for a potential move toward $3.83 USD.

Conclusion: Navigating Euphoria with Discipline

Today’s market action presented a fascinating dichotomy. On one hand, the broad indices remain in a powerful and resilient uptrend, defying headwinds like the government shutdown. On the other, a pocket of speculative mania in the AI sector has created runaway moves that are stretched to historical extremes.

The key takeaway is the vital importance of discipline. While it’s tempting to chase stocks like Micron and Seagate, history shows that such parabolic moves are often followed by sharp and painful corrections. The professional approach is to wait for these extended names to pull back to logical support levels. At the same time, opportunities may be brewing in overlooked stocks like SMCI, which exhibit powerful bullish patterns without the euphoric price extension.

As we move forward, the confirmation of Bitcoin’s breakout pattern will be a key event to monitor. For equity traders, the lesson is clear: respect the trend, but do not chase euphoria. By identifying key levels, understanding when a stock is overextended, and patiently waiting for high-probability setups, traders can navigate this complex environment and avoid being burned by the market’s runaway trains.