To The Moon

Last night, in a futures livestream on the Tiger platform, I shared my latest views on the movements of gold, equity indices, and the U.S. dollar following the U.S. Treasury’s announcement on Treasury bond purchases.

The core of this session was how to assess, through correlations across different asset classes, whether the market has shifted from a range-bound environment into a new trend phase. Those who were unable to attend may watch the replay of our video course here: >>>

Could the U.S. Treasury’s Aggressive Market Support Backfire? Three Ways to Track the Current Market

Next, I will summarize the key information and trading-related views from the session, so that readers who did not have time to join can quickly understand my current market perspective. First, a brief personal introduction:

The core views from this session are as follows:

On Wednesday, the U.S. Treasury announced that it would increase its monthly purchases of long-dated Treasury bonds from USD 2 billion to USD 4 billion. Relative to the total U.S. Treasury market of approximately USD 31–40 trillion, this amount is extremely small.

The policy had not been anticipated by the public market. Its unexpected announcement prompted speculation that the Treasury might be initiating a form of quasi-quantitative easing (QE), which is directly supportive of a broad range of risk assets in the short term. Following the announcement, gold prices rose rapidly beyond the range previously anticipated, while commodities such as agricultural products, crude oil, and copper also delivered relatively favorable price performance.$WTI原油主连 2610(CLmain)$ $大豆主连 2611(ZSmain)$ $COMEX铜主连 2612(HGmain)$ $微型铜主连 2612(MHGmain)$

The Fundamental Difference Between the Two Types of Bond Purchases

When the Federal Reserve purchases Treasury securities held by commercial banks, it injects new base money into the market. Because the Fed can independently adjust the scale of this monetary injection, this constitutes genuine quantitative easing.

To determine whether true QE is taking place, the key indicator is the amount of new base money injected into the market by the Federal Reserve.

If the Treasury issues low-yielding short-term debt to purchase higher-yielding long-term bonds and earns the carry spread, then support for long-duration bond prices will weaken correspondingly once it becomes more difficult to place the newly issued short-term debt. This introduces a degree of uncertainty and risk.

If the funding instead comes from the Treasury General Account (TGA) emergency account, it can only create a limited and temporary increase in liquidity. Once TGA funds are depleted, the operation will cease; therefore, it lacks long-term sustainability.

Core Market Expectations and Outlook

The market currently assigns a probability of more than 60% to the Federal Reserve raising rates within the year. The probability of keeping rates unchanged in September is around 60%, with the main expected timing for a rate hike pointing to December.

The Treasury’s additional purchases of long-term bonds have not materially changed rate-hike expectations. They have merely boosted market optimism in the short term. Over the longer term, market direction will still be determined by Federal Reserve policy.

Historical market behavior over the past two decades suggests that going long across asset classes has generally had a higher probability of success during periods of Fed rate cuts and QE. By contrast, markets have tended to be more range-bound during periods of rate hikes and quantitative tightening (QT), making trading considerably more difficult.

Trading Strategy Suggestions

U.S. Equity Index Strategy

• U.S. equity indices have historically shown a tendency to reach market turning points in February, May, August, and October. This year, February and May have both already seen interim highs, and the August pullback is consistent with this pattern.

• The Nasdaq and S&P 500 have now reached key support levels, namely the 20-week moving average and the 20-day moving average for S&P futures. A clear rebound has emerged recently, validating the effectiveness of this support.

• If the August correction concludes smoothly, the next key potential market turning point to watch will be October. At that time, the directional outlook should be reassessed based on prevailing market positioning.$标普500(.SPX)$ $标普500ETF(SPY)$ $SP500指数主连 2609(ESmain)$ $微型SP500指数主连 2609(MESmain)$ $纳指100ETF(QQQ)$ $纳斯达克(.IXIC)$ $纳指三倍做多ETF(TQQQ)$ $微型NQ100指数2609(MNQ2609)$ $NQ100指数主连 2609(NQmain)$ $道琼斯(.DJI)$ $道琼斯指数主连 2609(YMmain)$ $微型道琼斯指数主连 2609(MYMmain)$

Gold Strategy

• On July 16, I clearly highlighted a bottoming signal for gold. Gold has since rebounded by approximately 13% in cumulative terms and has now entered a resistance zone around 4,600. Further upside appears limited in the short term.

• Review of the move: Profits from the gold rebound between July and August have already been realized. Investors with existing positions may reasonably lock in gains and need not become overly preoccupied with subsequent short-term fluctuations.

• Gold trading recommendation: Gold is currently in a high-level resistance zone. Investors are not advised to chase the rally. Short-term holders may consider taking profits, while new entry opportunities should be considered only after a clear pullback signal emerges.$黄金主连 2612(GCmain)$ $微黄金主连 2612(MGCmain)$

U.S. Treasury Trading Instrument Recommendation

• CME’s 10-Year U.S. Treasury Note Yield futures offer transparent pricing. Investors do not need to calculate Treasury yields independently, as the contract can be traded directly based on changes in interest rates, resulting in a lower operational threshold.

• Directional reference: If you believe the 10-year U.S. Treasury yield will not break above 5%, you may consider shorting the futures contract. If you believe yields will continue to rise, you may consider going long the contract.