To The Moon

Introduction

1. Further rate hikes remain firmly in play. CME FedWatch puts the chance of another October hike at 57.6%. The popular “dovish hike” narrative misreads the policy signal. If October payrolls remain strong, three hikes this year become a credible outcome. Volatility would rise accordingly.

2. The dollar may be entering a faster leg higher. September’s rate hike marked a turning point in the dollar cycle. Because rate differentials now drive the trend, commodity longs face a difficult backdrop.

3. US stocks remain strong, but beware the "last hurrah". Avoid excessive bullishness before the midterm elections. The Dow and Russell peaked in August, so October is the next window for a possible top in the Nasdaq and S&P 500. Limit exposure to tactical trades and short-dated put sales. Use the 20-week moving average to take profits or cut losses. Do not hold through a decisive break.

4. Stay patient on commodities, then buy decisively. The US debt burden makes prolonged high rates difficult to sustain. Once the dollar rally runs its course, commodities may offer a major buying opportunity. Crude could be the last commodity to fall, so use it as a bellwether. Keep gold and silver trades tactical, with modest targets.

5. Expect choppy downside in US stocks over the next one to two months and buy sharp pullbacks. Three signals support this view. First, long-term Treasury yields have retreated from 5%. Yields have driven the stress in this cycle, while inflation has played a smaller role. If 5% remains a ceiling, tightening has effectively done its job. Second, Bitcoin and Ether have led markets this year and have yet to reverse. Third, the crude curve remains backwardated, while prices face resistance above 100. A range-bound view is therefore more appropriate. Price action and cycle timing may soon converge to end the equity rebound.

6. Another run at record highs may be close. The S&P 500 flag and the Nasdaq’s short-term consolidation are nearing completion. This leaves room for another push to record highs. Stay with the trend while key levels hold. Any entry must still offer an attractive risk-reward profile.

7. Fresh highs mask deep divergences in market internals. The 2004, 2015, and 2022 hiking cycles followed the same script. Markets rallied, fell sharply within one to three months, found a floor, and then began a longer bull run. A drop before the November election may again be unavoidable. A durable recovery afterward is far less certain. A standard cycle moves from recovery into expansion. Here, ultra-loose policy fueled inflation and ultimately forced rate hikes. The setup therefore resembles the late stage of an AI bubble. The longer-term outlook now hinges on AI earnings. They must justify expectations already priced in.

8. Flows and breadth expose the cracks. Institutional positioning has slipped back to neutral. Retail investors bought only $1.6 billion of Magnificent Seven stocks in one week, while selling $2.2 billion across the rest of the market. Dip buying continues to fade, even as call buying has surged over the past five sessions. The share of S&P 500 members above their 200-day moving averages has dropped from 75% to 52.6%. Such a narrow high looks like a final sprint. It lacks the breadth of a durable advance.

9. Two indicators will decide the next move. The two-year Treasury yield has formed a bearish TD Sequential 9 setup. If it turns lower, three rate hikes are fully priced in. That would support further near-term gains in US stocks and a rebound in gold. Conversely, if DXY holds above 100.5 and the two-year yield breaks back above 4.7%, hawkish repricing will continue. Gold would then stall at 4,415 and form a near-term top. A break below 1.1517 in EUR/USD would open another leg lower.

This Week’s Market Review

The Fed’s September FOMC meeting was the main market driver last week. The Committee voted unanimously to raise the federal funds target range by 25 basis points to 3.75% to 4.00%. This was its first rate hike since July 2023. The dot plot signaled room for one more increase this year, while the probability of an October hike rose to around 50%.

Meanwhile, the latest Labor Department data showed that headline CPI rose 3.4% year on year in August, while core CPI increased 2.4%. Both monthly readings exceeded forecasts. Persistent inflation therefore led markets to price in a more hawkish Fed stance.

In rates, the latest FRED data showed that the 10-year Treasury yield briefly topped 5.04% this week, its highest level since 2007. It ended the week near 4.98%. The surge in yields directly pressured risk asset valuations.

World P/E Ratio data show that the S&P 500 trades at a trailing P/E of 24.51 times, slightly below its 10-year average of 25.2 times. However, as rates rise, the earnings yield spread over Treasuries has fallen to minus 1.14 percentage points. The S&P 500 earnings yield of 3.84% now trails the 4.98% risk-free yield on the 10-year Treasury. On a relative-value basis, bonds therefore look more attractive than equities.

At the sector level, Information Technology (XLK) and Communication Services (XLC) led this week’s gains. Market breadth remained weak, as only three of the 11 sectors advanced. Information Technology traded at 33.42 times earnings, leaving it expensive relative to its 20-year history. Even so, strong AI momentum helped the sector outperform. Communication Services had the lowest P/E at 15.21 times. Energy (XLE) and Financials (XLF) traded at 17.81 and 15.73 times earnings, respectively, suggesting more reasonable valuations.

Overall, the Fed’s hawkish rate hike and persistent inflation have kept the 10-year Treasury yield near 5%. As a result, the equity-bond yield spread remains deeply negative. The S&P 500 has yet to reach an extreme valuation. Even so, high-multiple growth sectors remain highly sensitive to rates in a higher-for-longer environment. Sector performance may therefore remain divided. The direction of convergence between earnings yields and the risk-free rate will be a key signal.

Featured Community Contributors

@程俊Dream ：Fed Hike Lands: Direction Confirmed? Risk Assets Set for Another Strong Month

The near-term direction is now fairly clear. Risk assets are likely to maintain their choppy upward trend over the next one to two months. This applies to gold, where our entry missed by only a few dollars, as well as US equity indices still trading near their highs. Pullbacks in both should offer opportunities to build long positions over the coming weeks.

$S&P 500(.SPX)$ $NASDAQ(.IXIC)$ $Dow Jones(.DJI)$ $E-mini S&P 500 - main 2612(ESmain)$ $E-mini Nasdaq 100 - main 2612(NQmain)$ $E-mini Dow Jones - main 2612(YMmain)$

For the 10-year Treasury yield, 5% is a macro warning threshold and a key technical resistance level. A decisive break above it would trigger major knock-on effects. For now, that risk appears contained.

$US10Y(US10Y.BOND)$ $US2Y(US2Y.BOND)$ $10-YR T-NOTE - main 2612(ZNmain)$ $Micro 10-Year Yield - main 2609(10Ymain)$

A second signal comes from crypto assets, which we have highlighted before. Both Bitcoin and Ether rallied after last week’s rate hike announcement, opening the door to fresh breakouts. They may struggle at the next major resistance levels. Even so, higher rebound highs suggest that risk appetite will remain constructive for some time.

$CME Bitcoin - main 2609(BTCmain)$ $iShares Bitcoin Trust(IBIT)$ $CME Ether - main 2609(ETHmain)$ $Volatility Shares 2x Ether ETF(ETHU)$

The third signal comes from oil. The WTI curve remains in backwardation, while prices have struggled to make meaningful progress above $100. This suggests that price action has reached resistance. Without a major new catalyst, oil will likely return to range-bound trading and consolidation.

$United States Oil Fund LP(USO)$ $WTI Crude Oil - main 2611(CLmain)$ $E-mini Crude Oil - main 2611(QMmain)$ $Brent Last Day Financial - main 2612(BZmain)$

Finally, the S&P 500’s flag pattern and the Nasdaq’s short-term consolidation are nearing completion. Both indices may soon challenge their record highs again. Taken together, these cross-asset signals establish a clear near-term bias. Avoid trading against the trend while key levels continue to hold. Any entry should still offer a favorable risk-reward profile.

This Week’s Macro Trading Strategy

For the euro long, half of the position filled at 1.1502. The remaining half has a limit order at 1.1442. The stop is set at 1.1360, with a target of 1.1800. The pending order remains valid until canceled.

$Euro FX - main 2612(EURmain)$ $ProShares UltraShort Euro(EUO)$

The crude oil long, entered at an average price of $75, previously reached its first target at $95. Half of the position has been closed for profit. This week, the stop is raised to $84. The remaining position will be closed at the next target of $115.

$United States Oil Fund LP(USO)$ $WTI Crude Oil - main 2611(CLmain)$ $E-mini Crude Oil - main 2611(QMmain)$

Last week’s gold long missed execution by less than $10. A deep pullback now appears unlikely in the near term. The new tactical setup is a limit buy at $4,340, with a stop at $4,270. The targets are $4,550 and $4,760. This order is valid through the end of the week.

$Gold - main 2612(GCmain)$ $E-Micro Gold - main 2612(MGCmain)$ $1-Ounce Gold - main 2612(1OZmain)$

The pending gold short orders remain in place. Sell limits are set at $4,830 and $5,170, with half of the position allocated to each level. The stop is $5,275, and the target is $4,000.

P.S. Once a trade reaches its first target, the stop will automatically move to the entry price. Any adjustments after execution will be covered in subsequent reports.

@Ivan_Gan : How To Trade the Rate-Hike Cycle: Watch for the Final U.S. Equity Rally！ 📈📉

A note of caution. The latest CME FedWatch data still put the probability of an October rate hike near 60%. That level offers little support for the market’s current “dovish hike” narrative. If October payrolls remain strong, markets may have to price in three hikes this year. The impact could be substantial, so investors should remain alert.

Shorting US equity indices before the midterm elections is generally unwise. Still, investors should understand the nature of this rally. It could prove to be the final advance of the year. Traders can stay with the move and use the 20-week moving average to take profits or cut losses. Holding through a decisive break would carry excessive risk.

Divergence has already emerged across the major indices. The Dow and Russell appear to have peaked in August, which was an important market timing window. October is now approaching. The next test is whether the Nasdaq and S&P 500 also set their annual highs during this second key window.

$S&P 500(.SPX)$ $NASDAQ(.IXIC)$ $Dow Jones(.DJI)$ $E-mini S&P 500 - main 2612(ESmain)$ $E-mini Nasdaq 100 - main 2612(NQmain)$ $E-mini Dow Jones - main 2612(YMmain)$

I have also discussed the renminbi’s cyclical pattern with readers offline. The exchange rate has now reached a critical level. Further dollar strength could lead to renewed renminbi weakness, so the broader view remains unchanged.

$Euro FX - main 2612(EURmain)$ $ProShares UltraShort Euro(EUO)$ $HKEX USD/CNH - main 2612(CNHmain)$ $Mini HKEX USD/CNH - main 2612(MCNHmain)$ $SGX USD/CNH - main 2612(UCmain)$ $Mini SGX USD/CNH - main 2612(MUCmain)$

The renminbi is better suited to a medium-to-long-term horizon because it moves more slowly than the euro. Investors should choose and monitor their exposure accordingly. Given the sensitivity of the related charts, I will refrain from publishing them online. I will continue tracking the market and provide relevant updates.

The near-term outlook for commodities remains cautious during the US rate hike cycle. However, the Treasury’s debt burden may limit how long high rates can persist. Once the current tightening cycle ends, commodities could offer the next major long opportunity. For now, investors should wait for the cycle to create more attractive entry levels. Crude oil may be the last commodity to decline, making it a useful bellwether. Keep gold and silver trades tactical, with modest profit targets.

This Week’s Macro Trading Strategy

Markets entered a quieter phase between the FOMC meeting and the payrolls report. With the rate hike cycle underway, attention has shifted to the likely pace of tightening. Markets currently expect gradual increases. However, three hikes this year could trigger significant volatility.

1. Last week’s equity index put-selling strategy generated a steady 1.5% return. The indices remain above their 20-week moving averages, so the near-term bias stays range-bound to bullish ahead of the October timing window. This week, we will continue selling Nasdaq puts. Select strike prices at least 6% below last week’s closing level.

2. The core short position in euro futures is profitable. A modest addition can be made on a rebound. Move the protective stop to 1.162 to lock in gains. The renminbi continues to appreciate, leaving the core position with an unrealized loss. The outlook remains unchanged, so we will continue holding the position.

@Owen_trading room ：A Divergence Behind New Highs in U.S. Stocks: Why I’m Still Selling Puts and Running Small Straddles

The S&P 500 followed almost the same opening pattern across three complete rate hike cycles: June 30, 2004 to June 29, 2006; December 16, 2015 to December 19, 2018; and March 16, 2022 to July 26, 2023.

The market did not turn as soon as the first hike arrived. Bulls usually received one final window. In 2004, the S&P 500 consolidated near 1,140 for several more weeks.

$Invesco QQQ(QQQ)$ $SPDR S&P 500 ETF Trust(SPY)$ $S&P 500(.SPX)$ $E-mini S&P 500 - main 2612(ESmain)$ $Micro E-mini S&P 500 - main 2612(MESmain)$ $Cboe Volatility Index(VIX)$

Federal Funds Rate Cycle, June 30, 2004 to June 29, 2006: The S&P 500 trended higher after initial weakness.

In December 2015, the index first climbed above 2,080 before beginning to weaken.

December 16, 2015 to December 19, 2018: The S&P 500 Trended Higher After an Initial Decline

The March 2022 episode was even more pronounced. After the first rate hike, the market staged a sharp relief rally, lifting the index from around 4,200 to 4,600.

In other words, the market can still reach a new high after the first rate hike.

Then the script changes. All three cycles followed the same pattern. A meaningful selloff arrived within one to three months of the first hike. Only then did the phase familiar to long-term investors begin. The market found a floor, rebounded, and entered a clear rising channel. That advance lasted one to three years.

The standard sequence has four stages: an initial rally, a sharp decline, stabilization, and finally a prolonged bull market.

However, those three historical cycles shared the same macro backdrop. Each began as the economy emerged from recession, entered recovery, and moved toward expansion. Rates rose gradually from very low levels. The hikes therefore confirmed that the economy was strengthening.

The current cycle has a different starting point. It began with aggressive rate cuts after the 2020 pandemic. Ultra-low rates and abundant liquidity then persisted for an extended period. That liquidity eventually pushed inflation out of control and forced the Fed to tighten. The economy is far from moving from recovery into expansion. The current setup more closely resembles the late stage of an AI bubble. Interest rates also remain elevated in absolute terms.

I therefore see another selloff as highly likely. US equities could suffer a sharp decline before the November election, and the market may struggle to avoid it. Whether a sustained rally follows is far less certain. A repeat of the historical long-term advance remains a major question.

This Week’s Macro Trading Strategy

Starting with crude oil, prices are trading within a clearly defined range. The 20-day moving average provides support, while the previous high near 106.8 marks resistance. Two opposing forces have created this range. Trump is limiting the upside, while Iran may keep crude from breaking below its descending trendline.

For USO, the most likely outcome this week is range-bound trading between 141 and the previous high at 163. A simple put calendar spread can be structured as follows:

• Sell the 150 put expiring October 2. Its implied volatility is 49.13%, with a midpoint price of 3.63.

• Buy the 150 put expiring October 16, its implied volatility is 48.38%, with a midpoint price of 5.88.

The resulting net debit is approximately 2.25. The strategy sells the near-term option and buys the longer-dated option. It aims to profit from the faster time decay of the near-term put.

$United States Oil Fund LP(USO)$ $WTI Crude Oil - main 2611(CLmain)$ $E-mini Crude Oil - main 2611(QMmain)$

The payoff profile is straightforward. If USO falls to 141 or rises to 163, the strategy incurs only a small loss. It remains profitable as long as USO trades between 142 and 161. More importantly, the maximum profit is about $330, compared with a maximum loss of roughly $225. This gives the trade a favorable reward-to-risk ratio.

Investors seeking a higher probability of profit can consider a double calendar spread:

• Sell the 145 put and the 159 call expiring September 25.

• Buy the 145 put and the 159 call expiring October 16.

The double calendar spread slightly widens the profitable price range. It is therefore a reasonable alternative, although it requires more margin.

For this strategy, a break below USO’s descending trendline at 140 is the hard stop. If USO falls below 140, close the entire position immediately:

For equities, the preferred strategy remains selling puts.

The rationale is straightforward. Upside momentum is limited, while selling pressure also remains contained. This environment favors rolling weekly puts at suitably lower strike prices. Nvidia and QQQ are the preferred underlyings. Sell QQQ puts with strikes below 685. For Nvidia, continue using the technical reference levels discussed previously:

Last Week’s Strategy Performance Update