To The Moon

When you have a basic forecast for financial market trends, waiting for that prediction to materialize is often the most agonizing part.

My recent source of anxiety stems from a potential intermediate-term top in the US stock market. Because the historically predictable impulse rally of the US Dollar Index might materialize within the next month, US equities and other risk assets could face downward pressure from a strong dollar, triggering a correction. Although this drawdown might not be massive, if we mindlessly maintain a "permabull" stance, we could suffer short-term losses.

Watch for Technical Bearish Divergence

According to our historical backtesting, the probability of US stocks delivering positive returns over the next three months is currently at its lowest, and a substantial drawdown might be on the horizon. Therefore, during these three months, we must remain highly vigilant for topping signals in US stock indices and be ready to capitalize on this impending correction.

$S&P 500(.SPX)$ $SPDR S&P 500 ETF Trust(SPY)$ $Micro E-mini S&P 500 - Jun 2026(MES2606)$ $E-mini S&P 500 - main 2606(ESmain)$ $E-mini Dow Jones - main 2606(YMmain)$ $NASDAQ(.IXIC)$ $Micro E-mini Nasdaq 100 - Jun 2026(MNQ2606)$

Currently, the bearish divergence in US indices is becoming increasingly severe: as the indices continue to climb, the number of declining stocks within the S&P 500 increasingly outpaces advancing ones. This phenomenon of continuous divergence lasting over 6 trading days has not occurred since 1996.

From a technical tracking perspective, a triple bearish divergence on the daily chart is very obvious. Coupled with the breakdown of a somewhat irregular top fractal on the daily chart, the technical setup for a pullback is beginning to emerge.

However, we must note that a short-term correction is typically considered a complete technical cycle once prices pull back and consolidate at previous swing highs. Therefore, our most critical observation point right now is: will this correction break below the 20-day moving average (MA) and accelerate downward, or will it stabilize at the 20-day MA and continue to rally?

If the index falls below the 20-day MA and accelerates, our anticipated correction might be upon us. The overall decline is projected to be around 5%—not massive, but certainly enough to trigger market volatility. However, if market trends mirror the last occurrence, finding solid support at the 20-day MA and rallying immediately, US stocks might sustain their high-level fluctuations.

Faced with this uncertainty, we absolutely cannot afford to be mindless "permabulls" anymore. Keep in mind that the S&P 500 surged 16% across recent April and May. Looking back historically, such rapid gains have only happened four times since 1945. Three of these instances (post-2020 COVID, post-2009 Financial Crisis, and post-1975 Oil Crisis) occurred during recovery cycles following major risk events. The fourth happened between January and February 1987—just before the historic "Black Monday" crash in October 1987, when the index plummeted 20% in a single day. While history doesn't simply repeat itself, it absolutely warrants our vigilance.

 To navigate this highly volatile market, a safer approach is tracking the VIX (Fear Index). Investors with low risk tolerance can cautiously buy VIX or related ETFs with small positions on dips. Those with higher risk tolerance might consider lightly buying VIX call options on dips. Historical patterns suggest the VIX could still bottom out around 13.3, which might act as the floor (the first resistance level at 14.8 could break).

$Cboe Volatility Index(VIX)$ $ProShares VIX Short-Term Futures ETF(VIXY)$ $ProShares Ultra VIX Short-Term Futures ETF(UVXY)$

Currently, the VIX is showing initial signs of a rebound, with the 20-day MA acting as key resistance and a reference point for adding positions. A special reminder: if S&P futures stabilize at the 20-day MA and continue to rise, you must exit VIX positions promptly. Alternatively, you could opt for an S&P ETF bear put spread strategy to cap potential profits and losses within a strictly defined range.

When we shift our focus away from US stocks, we find an even more dangerous asset: Bitcoin.

On the daily chart, Bitcoin's recent price action closely resembles its previous major crash. Currently, a classic "head and shoulders" top pattern has emerged at recent highs, and the price has successfully broken below the neckline. From a purely technical standpoint, the downside target following the neckline breakdown has essentially been met. If it can rally from here and establish a bottom through consolidation, it would fit technical characteristics perfectly:

$Bitcoin(BTC.USD.CC)$ $Bitcoin(BTC.USD.HKCC)$ $iShares Bitcoin Trust(IBIT)$

But the fatal flaw is that we currently see zero signs that Bitcoin might consolidate and form a base. Looking back at the chart during the major dip in February this year, the market saw massive volume, forming a solid bottom. But if the current price breaches the February lows, Bitcoin will likely face a new wave of heavy declines. Based on the head and shoulders neckline projection, Bitcoin could search for an even deeper bottom.

Finally, I want to remind everyone to monitor a much more crucial price anchor: the US Dollar Index. 

Technically, the US Dollar Index has shown signs of initiating a further uptrend and is highly likely to continue rising, potentially breaking resistance to hit a high of 101.3. I don't believe the impact of a strong dollar is ending anytime soon; on the contrary, the pressure might just be starting. An impulse move in the US Dollar Index typically triggers a correction in global risk assets. When a truly strong dollar arrives, the pressure it exerts on both US equities and Bitcoin should not be underestimated.

Of course, under the shadow of a strong dollar, not all assets will face indiscriminate selling. Tactically, I currently maintain my strategy of selling calls at previous crude oil highs and selling puts at previous gold lows. I don't think a strong dollar will exert too much downward pressure on gold. This is because recent buying from global central banks remains robust, particularly the PBOC, which has been continuously purchasing. Supported by massive physical buying, a significant technical breakdown in gold seems unrealistic. However, regarding stop-loss strategies: if crude oil futures break above their previous high or gold futures break below their previous low, option writing positions must be stopped out promptly. Do not stubbornly hold onto a seller's strategy when strike prices are fundamentally breached.

In summary, this might be a time requiring immense patience and discipline. The high-level tug-of-war in US stocks could evolve into a substantial correction at any moment. Based on the technical warnings I've outlined above, I suggest observing over the next two weeks whether a pullback materializes into a significant drop of around 5%.

$Invesco DB US Dollar Index Bullish Fund(UUP)$ $USD Index(USDindex.FOREX)$