WARNING: The Stock Market Correction Has Begun, Don't Be Fooled

Market Downturn Analysis & Forecast – Gareth Soloway (VerifiedInvesting.com)

Key Concepts:

• D-risking: The act of reducing risk in a portfolio, typically by selling assets.
• Technical Analysis: A method of evaluating investments by analyzing past market data, primarily price and volume.
• Distribution: A phase in market cycles where institutional investors sell holdings to retail investors at elevated prices.
• Rounded Top: A chart pattern indicating a potential reversal from an uptrend to a downtrend.
• Trend Line: A line connecting a series of price points on a chart, used to identify the direction of a trend.
• Pivot High/Low: Significant price points on a chart representing potential support or resistance levels.
• FOMO (Fear Of Missing Out): The anxiety that an exciting opportunity will pass by.
• V-Bottom Recovery: A sharp recovery in price following a steep decline, forming a "V" shape on a chart.
• Parallel Channel: A price range defined by two parallel trend lines, indicating potential support and resistance.

I. Overview of Market Conditions & Initial Sell-Off

The stock market is experiencing a significant downturn, with the S&P 500 down 1.3% on the day of the analysis. This decline extends to gold, silver, and Bitcoin, indicating widespread “D-risking” across asset classes. Gareth Soloway attributes this to a pre-warned correction based on chart analysis, emphasizing a multi-day sell-off is likely. The initial trigger was skepticism surrounding the recent jobs report, deemed “too perfect” with every number exceeding expectations by a consistent margin. The market’s inability to sustain initial gains following the report signaled to “smart money” that the numbers were unreliable, prompting a sell-off into retail investor purchases.

II. S&P 500 Technical Analysis & Targets

Soloway’s analysis of the S&P 500 chart reveals a classic technical pattern suggesting further declines. The chart shows a breakdown of a key trend line established from the April low, with each subsequent bounce becoming smaller until the line was breached. A retrace to the trend line was followed by a lower high, confirming the bearish signal.

Specific Targets:

• First Target: 6,500.25 on the S&P 500.
• Major Target: 6,100, representing the former high from December 2024/early 2025 before the previous dip.

This target is based on identifying previous highs as potential support levels, particularly the price discovery move following the breakout. The recent break below the trend line signifies a shift to a “distribution” phase.

III. Understanding Distribution & Retail Investor Behavior

Soloway explains “distribution” as a market phase where institutional investors capitalize on the “emotional” buying behavior of retail investors. Retail investors, influenced by past “V-bottom” recoveries (COVID, 2018 tariff selloff, April 2023, August 2023), exhibit a “buy the dip” mentality fueled by analyst upgrades and FOMO, particularly regarding semiconductor stocks. This creates an opportunity for institutional investors to sell their holdings into this demand. The chart pattern demonstrates this dynamic with alternating periods of buying and selling, ultimately leading to a “rounded top” formation. The break of the key trend line is the trigger for this distribution phase.

IV. NASDAQ & Dow Jones Industrial Average Analysis

NASDAQ: The NASDAQ exhibits a similar pattern to the S&P 500, breaking a parallel channel established from the 2021 bull market high and the 2022 bear market low, connected to the 2018 tariff sell-off low. The target for the NASDAQ is a decline to around 17,000.

Dow Jones Industrial Average (DJI): While the Dow has shown more resilience, remaining above its trend line (as of the analysis date), Soloway warns that a break below this line would open the floodgates for a significant decline, potentially to the 49,000 level. He notes the Dow’s relative strength is due to its composition of more defensive stocks like Home Depot, Microsoft, and Walmart. He specifically mentions identifying a sell signal at 50,000, and the Dow dropped almost 600 points that day.

Soloway highlights his successful call on the Dow’s top through the Smart Money Stocks and ETF portfolio, where he identified the 50,000 level as a key resistance point.

V. Bond Market Signals & Economic Weakness

Soloway emphasizes the importance of the bond market, which is significantly larger than the stock market, as a more reliable indicator of economic health. Despite the strong jobs report, the 10-year Treasury yield decreased following the report’s release, failing to recapture initial gains. This suggests that “big money” does not believe the economic data is accurate.

Further supporting this view is data from Bank of America indicating a shift in credit card spending patterns. Spending by lower and middle-income brackets is declining, with strength remaining only among high-income earners, signaling a weakening economy. He stresses that recessions are not immediate but that the signals are emerging.

VI. Struggling Stocks & Walmart as a Warning Sign

Soloway points to the performance of individual stocks as further evidence of market weakness. While some stocks like Meta and Microsoft remain elevated, others like Nvidia and Broadcom are struggling. He specifically highlights Walmart’s all-time high as a concerning signal, suggesting that consumers are turning to discount retailers due to economic pressures.

VII. Chart Analysis as an Unbiased Indicator & Risk Assessment

Soloway reiterates his reliance on chart analysis as an unbiased method of market evaluation. He emphasizes that charts provide a high probability (70%) of success, making them a valuable tool for informed decision-making. He concludes by warning that the market is on “thin ice” and will only show strength if it breaks key trend lines on the S&P, NASDAQ, and Dow.

Notable Quote:

“The chart is the only thing out there that's unbiased, which is why I follow it because it doesn't have a narrative. It doesn't have a ulterior motive. The chart is the chart and it can tell us things with a high percentage of certainty.” – Gareth Soloway.

Conclusion:

Gareth Soloway presents a bearish outlook for the stock market, based on a comprehensive technical analysis of key indices and supporting economic indicators. He anticipates a multi-day sell-off with specific price targets for the S&P 500, NASDAQ, and Dow Jones Industrial Average. His analysis highlights the importance of recognizing market distribution phases, understanding retail investor behavior, and utilizing the bond market as a reliable economic indicator. He strongly advocates for a chart-based approach to investment decision-making, emphasizing its objectivity and potential for success.