The U.S. equity market has reached a near-term high. The hardest task now is not finding opportunities, but determining what the current volatility actually means. A pullback could be a minor interruption within a consolidation phase, or it could mark the start of a decline. An attempt to move higher could quickly reverse, or it could shift the entire trading range to a higher level. This is the crossroads at which U.S. equities now stand.
$标普500ETF(SPY)$ $标普500(.SPX)$ $标普500波动率指数(VIX)$ $SP500指数主连 2612(ESmain)$ $纳指100ETF(QQQ)$ $纳斯达克(.IXIC)$ $纳指三倍做多ETF(TQQQ)$ $NQ100指数主连 2612(NQmain)$ $道琼斯(.DJI)$ $道琼斯指数主连 2612(YMmain)$ $道琼斯ETF(DIA)$
If we rank the possible paths ahead from most to least likely, the first is continued consolidation around current highs; the second is a downside breakdown followed by a decline; and the third is another breakout to new highs, establishing a new trading range at a higher level. These three scenarios do not carry equal probabilities, but none has been ruled out. Committing prematurely to any one of them risks turning an unresolved assessment into actual portfolio exposure.
$恒生指数主连 2610(HSImain)$ $恒生科技指数主连 2610(HTImain)$ $A50指数主连 2610(CNmain)$
The more appropriate approach this week, therefore, is to wait for further clarity from both the news flow and the technical picture. On the news front, the key events are U.S. CPI and TSMC’s earnings report. On the technical side, whether market bellwether Nvidia can hold its rising channel is a particularly useful indicator to watch. Meanwhile, range-bound trading in gold and crude oil also offers opportunities to seek returns through options strategies.
$美光科技(MU)$ $英伟达(NVDA)$ $1.5倍做空NVDA ETF-Tradr(NVDS)$ $台积电(TSM)$
Let’s First Look at the Two Answers the Market Is Waiting For
The two most important events this week are the release of U.S. CPI on October 14 and TSMC’s earnings report on October 15. The former directly influences expectations for interest-rate hikes, while the latter is an important checkpoint for assessing technology-sector earnings expectations. Only after these events can we judge more clearly whether the current consolidation at elevated levels is likely to continue.
The implied probability of an October rate hike has now fallen below 20%, while expectations for a December hike remain relatively high. The decline in October expectations is an important backdrop to the recent weakening of the dollar and changes in U.S. Treasury price action. But the outcome is not yet settled: CPI coming in line with expectations is the more likely scenario this week. If the data are significantly higher than expected, however, the probability of an October hike could rise sharply again, triggering renewed volatility in Treasury prices.
This chain of developments will ultimately feed through to U.S. equities, particularly technology stocks.
Inflation persistence driven by energy prices has kept the possibility of further rate hikes firmly on the market’s radar. Technology-stock valuations are highly sensitive to interest-rate changes, and a further rise in inflation expectations could put pressure on valuations and trigger a pullback in share prices. The greater complication is that technology stocks account for both a substantial concentration of positions and a large share of earnings contributions. Even a modest change in interest-rate or earnings expectations could therefore cause significant volatility in a market already trading near its highs.
Reports last week indicating that OpenAI’s revenue would fall short of market expectations already demonstrated this transmission mechanism. After the news emerged, U.S. equities sold off from elevated levels, and institutional attitudes toward technology stocks also shifted.
According to Goldman Sachs, information technology had been the most heavily net-bought U.S. sector in four of the preceding five weeks, but became the most heavily net-sold sector last week. The relevant net-flow measure declined by 1.0 standard deviation relative to its level over the past year. A sector that had attracted concentrated buying suddenly became the focus of concentrated selling, illustrating how sensitive the market is to changes in the technology-sector earnings narrative.
The sharp correction in South Korean equities further intensified CTA funds’ reductions in global equity positions. Last week, CTA funds sold more than half of their previous positions:
However, the scale of selling specifically in U.S. equities was not particularly large:
The latest reading in the chart of CTA U.S. equity positions was approximately $39.87 billion, still above the historical average shown in the chart of approximately $32.36 billion. Pressure to reduce global equity exposure has emerged, but this does not mean that U.S. equity positions have been cut to the same extent.
Another quieter, but no less important, development can be seen in trading volume.
The five-day moving average of SPY trading volume has fallen to a level rarely seen in recent years. In the accompanying chart, five-day average volume is approximately 29.65 million shares, while single-day volume is approximately 18.16 million shares. Investors have not made clear, large-scale directional commitments at these elevated levels, leaving the market particularly cautious:
Low trading volume does not necessarily mean that price action will remain calm. When willingness to participate declines, the market can actually become more susceptible to large price swings. This is also why strategies are difficult to construct at present: chasing the upside lacks sufficiently clear confirmation, while positioning for the downside risks overlooking the fact that consolidation near the highs remains the more likely scenario.
At the same time, the market backdrop ahead of the November election also calls for caution when concluding that “a major sell-off is imminent.” Historically, market crashes have been relatively uncommon in the three weeks leading up to an election. I therefore lean toward the view that a larger correction from elevated levels in U.S. equities is more likely to be delayed until after the election. Before the election, the less favorable scenario may mainly involve substantial swings near the highs. Two possibilities need to be distinguished here: a breakdown and a decline of around 3% remain possible, but a larger sell-off is not currently my leading scenario.
Under these circumstances, waiting for CPI and TSMC’s earnings report while monitoring key levels in individual stocks should make it easier to align strategies with actual market conditions.
Nvidia is a particularly useful stock to watch.
Nvidia has now broken below its short-term fractal-top formation, and bearish sentiment is relatively strong. Looking at a somewhat broader timeframe, however, the share price has not yet moved out of the rising channel that supported its previous advance. These two signals are not contradictory: the weakening short-term topping structure indicates that downside pressure is playing out, while the fact that the broader rising channel has not been decisively broken means that rebound opportunities still exist.
Strategy Takeaways
If the share price falls to the area circled in red on the chart, a small position could be considered in an attempt to buy the dip. However, short-term downside momentum could still carry the price temporarily through the trendline, producing a whipsaw move. The more meaningful condition is whether a valid fractal-bottom formation subsequently develops and the price breaks above that formation. Such confirmation could set the stage for a rebound.
If a decisive break below Nvidia’s rising trendline is confirmed, the strategy should change accordingly. At that point, an at-the-money straddle could be established to position for a rise in implied volatility, or IV. This combination shifts the focus toward opportunities arising from greater volatility, rather than continuing to look for a rebound within the channel.
Now Let’s Turn to Long-Dated Treasuries, Crude Oil, and Gold
For long-dated Treasuries, we should continue looking this week for further evidence that prices are bottoming, while carefully watching for signs that yields are reaching a near-term peak. In terms of positioning, CTA funds’ net short exposure to U.S. Treasuries is already close to historically rare extremes, creating considerable upside convexity. If the market reverses, position adjustments could amplify the rebound.
$2年美债主连 2612(ZTmain)$ $10年美债主连 2612(ZNmain)$ $20+年以上美国国债ETF-iShares(TLT)$
On the fundamental side, ahead of the November election, Trump is highly likely to pressure Warsh to stop raising interest rates in an effort to create a relatively stable market environment for the election. This is another consideration supporting the possibility of a near-term bottom in long-dated Treasuries.
According to Bank of America’s fund-flow observations, substantial inflows went into money market funds and bond markets in the week ending last Wednesday. Cash funds attracted $166.4 billion, the largest inflow since April 2020; U.S. Treasuries received $16.2 billion, the largest inflow since April 2025; and investment-grade bonds attracted $10.3 billion, an eight-week high. The latest weekly inflow bar in the U.S. Treasury fund-flow chart also rose markedly.
These developments suggest that, as a potential bottom in long-dated Treasuries attracts increasing attention, more capital is already being positioned for a rebound. Even if expectations for an October rate hike rise again, that should not automatically be equated with Treasury prices breaking below their previous lows. If rate hikes bring down inflation expectations, long-dated Treasury prices could still receive support for a rebound. My short- to medium-term outlook for U.S. Treasury prices therefore remains tilted to the upside.
But this view faces one threat that cannot be ignored: crude oil.
At present, crude oil supply is not keeping pace with consumption. According to a Goldman Sachs research report, global crude inventories have fallen by nearly 600 million barrels over the past seven months, with almost 60% of that decline coming from inventories in non-OECD countries:
$WTI原油主连 2611(CLmain)$ $微型WTI原油主连 2611(MCLmain)$ $美国原油ETF(USO)$ $天然气主连 2611(NGmain)$ $小天然气主连 2611(QGmain)$
If rising crude prices cannot be brought under control and inflationary pressure continues to intensify, long-dated Treasury prices could still break lower. For now, I regard this as a low-probability scenario and believe that Trump will try to keep crude oil prices stable ahead of the November election.
Strategy Takeaways
Let’s Look at the Crude Oil Strategy
Taken together, these considerations suggest that, although crude oil offers opportunities to seek returns from range-bound trading, the risk of an upside breakout must also be taken into account.
One specific approach is to construct an iron condor using USO, positioning for its price to fluctuate between 140 and 160. These levels refer to USO’s price boundaries and must be distinguished from WTI futures prices.
The combination shown in the accompanying chart uses options expiring on October 21: buy the 138-strike put, sell the 140-strike put, sell the 160-strike call, and buy the 162-strike call. A protective leg on each side completes the iron condor structure. The simulated maximum profit shown in the chart is 70.50, and the maximum loss is 129.50, illustrating a combination with both limited profit potential and limited risk.
The core condition for seeking a return from this strategy is that the price remains within the target range. However, the stop-loss should not be delayed until the maximum loss is reached. If USO falls below 140 or breaks above 160, the position should be closed, rather than allowing a range-trading strategy to become passive exposure to a trending breakout.
To address the risk of a sharp rise in crude prices, a nearby-versus-deferred futures spread can also be prepared. Once WTI crude breaks above 93.5, buy the nearby December contract and sell the deferred March contract for the following year, creating a bullish calendar spread as a hedge against an upside breakout in crude oil. The existing calendar-spread approach can remain in use, but this specific position has its own entry trigger and stop-loss condition: if WTI falls back below 93.5, close the position to cut the loss.
$小原油主连 2611(QMmain)$ $微型WTI原油主连 2611(MCLmain)$
Now Let’s Look at the Gold Strategy
The gold strategy also requires confirmation. Wait for the continuous front-month gold futures contract to break above its 20-day moving average before considering the sale of puts with strikes below 4,000, with the aim of collecting option premiums on a weekly basis. To protect against a sudden, unexpected decline in gold, puts can be purchased at a lower strike, such as 3,950, adding a layer of protection to the short position.
$黄金主连 2612(GCmain)$ $白银主连 2612(SImain)$ $微黄金主连 2612(MGCmain)$ $微白银主连 2612(SILmain)$ $100盎司白银主连 2612(SICmain)$ $1盎司黄金主连 2612(1OZmain)$
This approach can also be implemented through GLD. The example in the accompanying chart sells the 375-strike put expiring on October 20 and buys the 370-strike put with the same expiration date. The simulated maximum profit shown in the chart is 69.50, and the maximum loss is 430.50. The lower-strike long put limits the risk of a sudden decline. The 4,000 and 3,950 levels in gold futures and the 375 and 370 levels in GLD represent implementations of the strategy on different underlying instruments and must not be used interchangeably.
The key point to remember with this strategy is that, if GLD falls below its previous low at 373, the position must be stopped out immediately. Do not wait until the maximum loss shown in the chart below has been reached before considering an exit.
Comments