Trading The Close Market Recap: Market Divergence & Ethereum's $7,200 Target
Despite a stronger-than-expected GDP report, the markets faced significant selling pressure today, setting a tense stage for tomorrow's critical inflation data. While the economy shows signs of robust health, diverging signals from key market indicators have created a fascinating tug-of-war between bullish and bearish forces. In this afternoon's Trading The Close Market Recap, Drew Dosek of Verified Investing broke down the critical technical levels, the conflicting leading indicators, and a powerful trade setup in Ethereum that traders should be watching closely.
The Macroeconomic Tug-of-War
This morning, the market received news that the U.S. economy is running hotter than anticipated, with GDP coming in at 3.8%, beating the 3.3% forecast. In a typical environment, strong economic growth would be a clear positive for equities. However, in the current climate, every data point is viewed through the lens of inflation and its potential impact on Federal Reserve policy.
This sets the stage for a high-stakes data release tomorrow morning. As Drew noted, "Tomorrow we’ve got the PCE data that’s going to be released at 8:30 a.m., as well as personal income. So we’re going to get a lot more inflation data." The Personal Consumption Expenditures (PCE) price index is the Fed's preferred measure of inflation. Its reading will heavily influence the market's perception of the central bank's next move, particularly regarding the two potential rate cuts Chairman Jerome Powell has hinted at before year-end. The market is holding its breath, and today's price action reflects that uncertainty.
The S&P 500's Line in the Sand
The broad market, as measured by the S&P 500, experienced a significant drop of 5.6% today. This sharp decline brought the index to a critical technical juncture: a long-term inclining trend line that has served as support time and time again. This trend line represents the "line in the sand" for the current uptrend. A decisive break below this level could be the catalyst for the broader correction many analysts have been anticipating.
Drew highlighted the importance of this level, asking, "Is tomorrow’s PCE data going to be the thing that pushes us over the edge of this cliff and eventually give us our 5% to 10% correction that I’ve been just waiting for on this huge march up?" For traders, the levels to watch are precise. The trend line support currently sits at 6,576, a level that was tested and held today. Tomorrow, that dynamic support level will rise to 6,586. A close below this ascending support would be a significant technical breakdown, signaling a potential shift in market character from "buy the dip" to "sell the rip."
A Market Divided: Decoding the Divergence
The most compelling story in the market right now is the stark divergence between its leading indicators. Different sectors are telling completely different stories, creating a puzzle that tomorrow's PCE data may solve.
The Bearish Chorus: Dow and Bitcoin Signal Caution
On one side of the ledger, two key indicators are flashing warning signs. The Dow Jones Industrial Average, after putting in a classic topping tail candle on Tuesday, has confirmed a breakdown below a key inclining trend line. This technical break has flipped prior support at $46,343 into new resistance, and as Drew sees it, "The probabilities actually indicate a higher probability of a move down on this chart."
Adding to the bearish case is Bitcoin. As a premier risk-on asset, its price action often serves as a barometer for market sentiment. Today, Bitcoin fell 3.46%, breaking down from a potential inverse head and shoulders pattern. This failure is significant. As Drew explained, "Bitcoin is falling. That tells us risk is coming off the table." When two disparate but important indicators—a legacy industrial index and a leading digital asset—both signal a move down, traders must pay close attention.
The Bullish Bastion: Semiconductors Stand Strong
On the other side, the semiconductor sector (SMH) is refusing to yield. Semis are widely considered a leading indicator for the tech sector and the broader market. Today, while other indices struggled, the SMH staged a powerful bounce precisely off a key technical trend line, closing strong. This resilience suggests that underlying strength remains in the most critical part of the market.
This creates a fascinating impasse. The bulls, led by the semis and the persistent "buy the dip" crowd in the Nasdaq, are battling the bears, who are pointing to breakdowns in the Dow and the risk-off signal from Bitcoin. The market is coiled, and tomorrow's inflation data is poised to be the catalyst that resolves this conflict one way or the other.
The Art of the Trend Line: A Masterclass in SMH
Drew's analysis of the semiconductor ETF (SMH) provided a perfect illustration of the power of proper technical analysis, particularly the use of trend lines. He often refers to them as "magical trend lines," and today's price action showed why. The absolute low of the day in the SMH perfectly tagged a trend line drawn by connecting the high pivot from February 25th to the pivot from August 13th.
This isn't magic, but a reflection of market psychology and order flow. A correctly drawn trend line represents a dynamic area of supply or demand that has been validated by the market over time. When price returns to such a line, it meets a confluence of orders from traders who are also watching that exact level. The precision of today's bounce in the SMH validates this methodology and highlights how technical analysis can provide a clear roadmap for identifying high-probability entry and exit points. For the SMH, the path is now clear: continued strength targets resistance at the $330 level, while a breakdown would find support at the bottom of the parallel channel near $306.
Capitulation and Opportunity: The CarMax Volume Anomaly
While the indices paint a broad picture, individual stocks offer unique stories. Today's biggest story was CarMax (KMX), which reported a disastrous earnings miss, with earnings per share falling 38% short and revenue missing by 5.88%. The market reacted swiftly, punishing the stock with a 20.07% decline.
However, hidden within that brutal price action was a potentially powerful bullish signal: a massive volume spike. Drew pointed out that the volume on today's decline dwarfed any trading day in the stock's recent history. This phenomenon is known as capitulation volume. It often signals that the last of the fearful sellers have been flushed out, and large, long-term buyers are stepping in to accumulate shares at depressed prices.
Drew drew a parallel to a similar event in YUM Brands, where a massive volume spike after a steep decline marked the near-term bottom. "That’s exactly what I think is about to happen for CarMax," he stated. While the stock could still drift lower, this type of volume signature is a strong indicator that a significant bottoming process has begun.
The Big Trade: Ethereum's Path to $7,200
Amidst the market's uncertainty, Drew highlighted a compelling long-term opportunity in the cryptocurrency space: Ethereum. After a powerful run toward $5,000, Ethereum has pulled back to the $3,899 level, creating what Drew sees as a prime accumulation zone.
He identified a technical pattern on the chart that projects a potential move all the way to $7,200. This presents a phenomenal risk/reward opportunity for patient investors. The key is to use the current weakness to build a position. Drew identified two key support levels to watch for entries: the first at $3,869, and a more significant level near $3,500.
"Come on down, Price Is Right style. Come down to $3,500—I’m a buyer," Drew declared. He advocated for a dollar-cost averaging approach, allowing investors to build a position over time and take advantage of any further dips. Even if the long-term pattern is negated by a break below $3,500, the upside potential to retest previous trend lines near $5,300 remains substantial. For those with a longer-term horizon, the current pullback in Ethereum appears to be a gift.
Conclusion: Awaiting the Verdict
The market stands at a critical inflection point. A strong economy is battling persistent inflation fears, and leading indicators are sending completely contradictory signals. The S&P 500 is testing a make-or-break trend line, the Dow and Bitcoin are pointing lower, while the vital semiconductor sector is showing incredible resilience.
All eyes now turn to tomorrow's 8:30 a.m. PCE data release. This single data point has the potential to resolve the market's current divergence and set the tone for the coming weeks. Whether the bulls or the bears win this fight, the resulting move is likely to be significant. By understanding the key technical levels and the conflicting forces at play, traders can prepare to navigate the volatility and seize the opportunities that arise.
