Trading The Close Market Recap - 10/06/2025: S&P Topping Tail & Nasdaq Divergence; AMD Failed-Flag Rally, Bitcoin & Gold Breakouts

Welcome back to the markets. After a weekend that saw Bitcoin and Gold forge new all-time highs, Monday’s session presented a more complex and nuanced picture. While some semiconductor names like AMD rocketed higher on major partnership news, the broader market indices flashed subtle but important warning signs. In this afternoon's Trading The Close show, Pro Trader Drew Dosek of Verified Investing dissected these conflicting signals, revealing key technical levels and patterns that could dictate the market's next move as we await commentary from the Federal Reserve later this week.

Today’s article will expand on the critical themes from the show, providing deeper context on the S&P 500’s potential topping signal, the powerful lessons from failed chart patterns, and the event-driven volatility that rocked individual stocks, offering a comprehensive roadmap for navigating the current landscape.

A Subtle Warning at the Highs

While the market has been in a powerful uptrend, Friday’s price action on the S&P 500 left behind a technical clue that warrants close attention: a topping tail. This specific type of candlestick pattern forms when buyers push the price significantly higher during a session, only for sellers to emerge with enough force to drive the price back down to close near where it opened. The result is a candle with a long upper "wick" or "tail," signaling a potential exhaustion of buying pressure and a shift in sentiment at a key resistance level.

As Drew noted on the show, this isn't a signal to panic, but rather a call for vigilance. "On Friday, we did have a topping tale that was posted here in the markets, as you see here with this red flag at 6,750, 6,750 points… Usually when you have a topping tale at the highs of charts, that should be monitored for further downside pressure, at least in the immediate near term."

This topping tail formed precisely at the intersection of two significant trendlines: a long-term parallel channel drawn from the COVID lows and a shorter-term inclining trendline from the August 2022 pivots. When multiple technical factors converge at the same price level, the resulting resistance becomes far more formidable. The market is now in a precarious position. A close above the high of that tail at 6,750 would negate the signal, but until then, it serves as a warning. Even if the market pushes past it, another layer of resistance waits just above at the 6,768 to 6,770 levels.

It's also important to understand that market tops are rarely a single-day event. More often, they are a process, what traders call a "rolling top." This occurs over several days or weeks as two opposing forces battle for control: the "buy the dippers" who are conditioned to buy every small decline, and the institutional investors who are using the market's strength to distribute their large positions and take profits. This battle can create multiple topping tails and choppy, sideways action before a clear direction is established.

Divergences and Overbought Conditions

Adding another layer of complexity to the market puzzle is the divergence between the major indices. While the S&P 500 is flashing a potential exhaustion signal, the tech-heavy Nasdaq 100 (QQQ) posted a strong close, pushing above a recent consolidation zone. On the surface, this appears bullish, suggesting leadership from the tech sector.

However, a look beneath the surface reveals a potential trap. The Relative Strength Indicator (RSI), a key momentum oscillator, has climbed back into the 70s on the QQQ. A reading above 70 is considered "overbought" territory. While a market can remain overbought for extended periods during a strong trend, it signals that the move is becoming stretched and vulnerable to a pullback. This creates a classic divergence: the S&P 500 is showing signs of a potential top via price action (the topping tail), while the Nasdaq is showing signs of exhaustion via a momentum indicator (the overbought RSI).

This type of inter-market divergence often precedes a period of consolidation or correction. It suggests that while momentum is still present, it is becoming less healthy and more selective. As we head deeper into what many retail traders have dubbed "Uptober," it's crucial to be aware of these signals. Drew cautioned, "Be mindful. We're up so much, this could be an ideal scenario for major institutions to start taking profit and moving their price targets elsewhere." The retail crowd's bullish enthusiasm can sometimes provide the perfect cover for larger players to unload their positions.

The Explosive Power of a Failed Pattern

Perhaps the most dramatic and instructive chart of the day was AMD. The stock surged on news of a major partnership with OpenAI, a move that seemed to come out of nowhere. However, the technical setup leading into the announcement provides a masterclass in one of trading's most powerful concepts: the failed pattern.

Leading up to today, AMD’s chart was forming a textbook bear flag. This pattern consists of a sharp decline (the flagpole) followed by a period of weak, upward-drifting consolidation (the flag). Typically, this pattern resolves with another sharp move down, and the chart was pointing toward a potential drop to the $127.27 level. But the pattern failed. The news catalyst caused the stock to explode in the opposite direction, trapping anyone who had shorted the stock in anticipation of the breakdown.

Drew emphasized the significance of this phenomenon: "Please, please, please ingrain this in your brain. Yes, this was a bear flag pattern that was forming on the chart… But when that bear flag pattern fails, we have some of the biggest moves in the opposite direction clearly displayed here on the chart of AMD."

The psychology here is critical. A failed pattern creates a "pain trade." Short-sellers are forced to buy back their shares to cover their losses, adding fuel to the fire. Simultaneously, breakout buyers jump in, creating a cascade of buying pressure that leads to an explosive rally.

However, the AMD story also contains a note of caution. The partnership deal involves AMD offering OpenAI warrants to buy millions of shares for just one penny, contingent on meeting certain thresholds. This potential for massive share dilution caused the initial excitement to fade, and the stock gave back a significant portion of its intraday gains. This whipsaw action highlights the conflict between a bullish news catalyst and bearish long-term fundamentals. For traders, the key levels to watch now are the first support at $191.25, with more significant support much lower at $169.32.

Bitcoin and Gold: Breakouts into Uncharted Territory

While the equity indices wrestle with resistance, Bitcoin and Gold have been on a tear. Bitcoin successfully broke out from an inverse head and shoulders pattern that Drew identified last week. The decisive move through the neckline triggered the pattern, setting up a measured move target of $127,459.

A measured move is a classic technical analysis technique where the height of the pattern is projected from the breakout point to estimate a potential price target. However, Drew provided a crucial piece of professional wisdom: "Please keep in mind as well, these measured moves don't always get to the target… sometimes those measured moves only reach up about 80 percent." This is why it's essential to also identify logical areas of resistance along the way. For Bitcoin, the top of its long-term parallel channel represents a more immediate area where taking some profit could be prudent, even if it falls short of the full measured move target. The price action remains bullish as long as Bitcoin holds above the top of that channel on a closing basis.

Gold, meanwhile, is in a state of extreme vertical ascent. The precious metal hit a high of $3,970 today, pushing its daily RSI to a staggering 83.8. This move has carried it directly into a major, long-term resistance trendline connecting the highs of April 2024 and April 2025. This confluence of an extremely overbought reading and a major trendline resistance makes the current price level a very high-probability zone for, at minimum, a period of consolidation or a healthy pullback.

Event Risk and Key Levels Across the Market

Monday served as a stark reminder of how quickly a stock’s narrative can change. Late in the afternoon, news broke that Applovin (APP) is under an SEC probe regarding its data collection practices. The reaction was immediate and brutal. On the 10-minute chart, the stock experienced a "kerplunk," plummeting from over $668 to below $550 in a matter of minutes before finding a temporary bounce.

This is a classic example of event-driven risk, where technical analysis takes a backseat to a fundamental bombshell. For those caught on the wrong side, it's a painful lesson. For those on the sidelines, it creates an opportunity to identify new potential support levels. The stock already tagged the first level at $557. Below that, the next areas of interest are the prior pivot high around the $522–$524 zone, and the most significant support at the bottom of its inclining parallel channel, near $470.

Elsewhere, other mega-caps present a mixed bag. Microsoft is tracing out a bullish inverse head and shoulders pattern of its own, with a measured move target of $548, suggesting strength can still be found in select pockets of the market. In the energy space, U.S. Oil is engaged in a critical battle at its former support trendline. After breaking down last week, oil has bounced directly back to retest the underside of the trendline. This is a make-or-break moment. If sellers re-emerge and reject the price here, the path down to the major support at $59.50 remains open.

Conclusion: Navigating an Inflection Point

The market is currently at a fascinating and critical inflection point. The broad S&P 500 is showing signs of exhaustion at major resistance, while the tech-heavy Nasdaq is overbought but has yet to definitively break down. Beneath the surface, powerful trends are playing out in commodities and cryptocurrencies, while individual stocks are being driven by company-specific news and powerful technical patterns.

This is a market that demands discipline and a multi-faceted approach. The lessons from today’s session are clear: respect warning signals like topping tails, understand the immense power of failed patterns, be aware of overbought conditions, and always be prepared for unexpected event-driven volatility. As we look ahead to speeches from Fed officials this week, including Chairman Jerome Powell on Thursday, the potential for a market-moving catalyst is high. By remaining focused on key technical levels and sound risk management principles, traders can position themselves to navigate the uncertainty and capitalize on the opportunities that arise.