To The Moon

English Version：

After a sharp selloff, investors tend to fall into one of two camps: those who believe the worst is over and a rebound could come at any moment, and those who fear the decline is only just beginning.

U.S. equities now sit squarely between those two views. Major indexes are approaching key technical levels, leadership in technology stocks is starting to weaken, and investors are looking for safe havens. But what happens next will depend on more than how far the market has fallen over the past few days. Two major catalysts will matter most: the U.S. midterm elections and Nvidia’s earnings.

$1.5倍做空NVDA ETF-Tradr(NVDS)$ $英伟达(NVDA)$ $标普500(.SPX)$ $标普500ETF(SPY)$ $SP500指数主连 2612(ESmain)$ $纳指100ETF(QQQ)$ $纳斯达克(.IXIC)$ $NQ100指数主连 2612(NQmain)$ $道琼斯(.DJI)$ $道琼斯指数主连 2612(YMmain)$ $微型道琼斯指数主连 2612(MYMmain)$

These events will unfold on different timelines. Voting in the midterm elections takes place on November 3, while Nvidia will not report earnings until November 17. Over the coming week, the market’s first task will be to assess the implications of the election results. Once investors have digested the political outcome, Nvidia’s results will become the next major driver of market direction.

One development deserves particular attention: a Democratic sweep of both chambers of Congress may already be largely priced in. If so, confirmation of that outcome may not trigger another wave of aggressive selling. Instead, the market could recover as uncertainty clears. But a short-term rebound is not the same as an end to medium-term risks. The real dividing line remains whether key assets can hold their critical technical levels.

1. The Outcome Investors Fear Could Create an Opening for a Rebound

To understand the current market, we first need to distinguish between the election outcome itself and what investors have already priced in.

The conventional view is straightforward: if Republicans lose their majorities in both chambers of Congress and Democrats take control, while the presidency remains in Republican hands, the result will be a divided government. That outcome could push U.S. equities below key support levels, trigger a wave of panic selling, and eventually produce a rebound from a lower level. Investors would then look to Nvidia’s earnings to set the tone for the medium- to long-term outlook.

But that scenario needs refining. The key question is not simply whether divided government will emerge. It is how much of that outcome is already reflected in market prices.

Goldman Sachs’ midterm election probability survey puts the likelihood of a Democratic sweep at nearly 70%. That does not make the outcome certain, but it does suggest that it would hardly come as a surprise. If investors have already adjusted their positions around this scenario, confirmation may represent not a fresh negative catalyst, but the resolution of an expectation the market has traded on repeatedly.

If Democrats do take both chambers, U.S. equities may be more likely to consolidate with a weak bias before posting a modest recovery. This is the familiar dynamic behind “buy the rumor, sell the news”—except that, in today’s bearish environment, the key point is that selling driven by an anticipated negative outcome may run its course once that outcome is confirmed.

A Bloomberg survey of institutional investors offers a similar perspective. Most respondents expect a relatively muted move in the S&P 500 on the day of a Democratic sweep, with gains or losses of no more than 1%.

The alternative is that Democrats fail to gain full control of Congress. Such a departure from expectations could spark a rally in U.S. equities. Either way, the possibility of a short-term rebound should not be dismissed. What matters most is how prices respond once the results are known.

$波动率短期期货指数ETF(VIXY)$ $1.5倍做多短期期货恐慌指数ETF-Proshares(UVXY)$

2. From Range-Bound Trading to a Breakdown: A Critical Juncture

Why do the election results matter so much at this particular moment? Because the market has fallen to levels where technical support can no longer be ignored.

The semiconductor index has already broken decisively below its previous trading structure, with a fairly clear topping pattern emerging. Its long-term trendline is still providing support, leaving one final opening for a rebound.

The S&P 500 has also broken below its recent trading range. The next area to watch is around 7,300, where the lower boundary of an earlier trading range converges with the 200-day moving average.

The Nasdaq, meanwhile, has reached its long-term trendline and is testing whether that support will hold.

A Deutsche Bank measure tracking the price ratio of large-cap growth and technology stocks relative to the rest of the S&P 500 is sending a similar signal: the ratio has reached the lower boundary of its trend channel. Like the S&P 500 and semiconductor stocks, it is at a level where a rebound is possible—but a breakdown is also close at hand.

These developments suggest that the market is not simply in a perpetual state of “oversold and ready to bounce.” It is at a genuine crossroads.

After the elections, the most important question will be whether these key levels are still intact at the close of the trading session following the results. If the market response is muted and the indexes move back into their trading ranges, there may still be room for a short-term recovery. But if several major assets lose critical support in succession, the expected rebound will have failed to materialize, and downside risks will be increasing instead.

3. Why the Danger Has Not Passed

Even if U.S. equities rebound after the election results, that would not mean the market is out of danger.

Start with market positioning. The potential trading response of commodity trading advisors, or CTAs, to moves in the S&P 500 is skewed heavily to the downside. The selling that a further decline could trigger is substantially larger than the buying a rally might generate, with potential sales exceeding $100 billion.

Meanwhile, the fundamental case for the large technology and AI stocks that previously led the market higher is also being tested.

Joint estimates from FactSet and Goldman Sachs indicate that aggregate free cash flow at major AI-related companies—Amazon, Google, Meta, Microsoft, and Oracle—turned negative in the third quarter and is expected to move deeper into negative territory through 2027. The resulting pressure is likely to be reflected gradually in technology stock prices.

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The issue, then, is not simply that technology stocks have fallen sharply in the short term. The expectations that previously supported their advance are now coming under fresh pressure.

4. Safe Havens: Bonds and the Dollar Offer Another Clue

Capital flows outside the equity market provide another perspective on the selloff. Goldman Sachs data show that fixed-income assets, including U.S. Treasuries, attracted substantial inflows during last week’s market decline.

Gold and silver, by contrast, were sold. This suggests that investors still view the U.S. dollar as a safe haven during the current risk-off episode. If U.S. equities continue to fall sharply, the U.S. Dollar Index could rebound, while gold could face further downside.

The signal from bonds is even more direct. The correlation coefficient between AI-related stocks and TLT has approached −1, indicating an extremely strong inverse relationship.

In other words, within this set of observations, weakness in technology stocks has coincided closely with strength in bonds.

This supports the view that bonds are a primary safe-haven destination during a sharp technology selloff, while the dollar could also rebound if technology shares fall further.

6. Nvidia Will Become the Next Decisive Catalyst

The midterm elections will shape the market’s immediate path. Nvidia’s earnings will help determine whether a more durable trend can emerge.

If Nvidia delivers results that beat expectations by a substantial margin, U.S. equities could establish a bottom and begin a sustained advance. But if its results merely meet expectations—or fall short—investors will need to be alert to another significant leg lower. In that scenario, the S&P 500’s 20-month moving average would become the next support level to watch.

Nvidia matters not just because one company’s earnings can move its share price. With large-cap technology and AI stocks already under pressure, its results will directly influence investors’ assessment of how much upside remains in technology-heavy indexes.

5. The Trading Priority: Wait for the Outcome Rather Than Bet on It

In this environment, taking a one-sided directional position over the short term remains risky. With the S&P 500 near the lower end of its trading range, traders could consider long-volatility options positions in QQQ to capture either a subsequent rebound or a downside breakout.

At the same time, the VIX futures curve has begun to invert, making volatility another area to watch.

If the close of the trading session following the election results confirms that all the key support levels discussed above have been broken, we could look to use long-volatility options positions to capture a further expansion in volatility, while positioning for additional upside in the VIX.

Conversely, if the market response is muted, or if the indexes rebound and move back into their trading ranges, bullish VIX positions and the related long-volatility options positions should be closed promptly.

The focus would then shift to selling deep out-of-the-money puts.

One approach would be to sell puts with very low strike prices. For example, we could continue to monitor Nvidia puts with strikes below $194, choosing expirations more than a week away but still before Nvidia’s earnings announcement. If Nvidia’s share price falls below the selected strike in the meantime, the position should be stopped out immediately.

The long-volatility options strategies in gold and Nvidia, along with the strategy of buying the VIX near its lows that I discussed in the previous update, have already generated substantial profits.