After Warsh replaced Powell as the Chairman of the Federal Reserve, expectations and rumors regarding an interest rate hike within the year have persisted. The substantial inflationary pressure brought about by the outbreak of the war in the Middle East has already forced multiple central banks to opt for rate hikes in response, and there is a high probability that the Federal Reserve will not go against this trend. However, looking at history, a rate hike does not signify an inevitable change in the trend; more often than not, other external crises are required to trigger a reversal in the market's trajectory.
According to the latest FedWatch data, the probability of maintaining the current interest rate level at the Federal Reserve's year-end meeting is only 22%, while the combined probability of various rate hikes of different frequencies and magnitudes is already approaching 80%. Based on past experience, a probability exceeding 70% is practically a certainty. Therefore, barring any major unexpected variables, the market has actually already begun to price in the impact of a Fed rate hike this year; the only difference lies in whether it will be one hike versus two, and 25 basis points versus 50 basis points.
$SPDR S&P 500 ETF Trust(SPY)$ $E-mini S&P 500 - main 2609(ESmain)$ $Micro E-mini S&P 500 - main 2609(MESmain)$ $Invesco QQQ(QQQ)$ $E-mini Dow Jones - main 2609(YMmain)$ $Micro E-mini Dow Jones - main 2609(MYMmain)$ $SPDR Dow Jones Industrial Average ETF Trust(DIA)$ $E-mini Nasdaq 100 - main 2609(NQmain)$ $Micro E-Mini Nasdaq 100 - main 2609(MNQmain)$ $US10Y(US10Y.BOND)$ $10-YR T-NOTE - main 2609(ZNmain)$ $NASDAQ(.IXIC)$ $S&P 500(.SPX)$
Many investors are concerned that once the Federal Reserve begins to raise interest rates, the increase in financing costs and potential liquidity pressures will destroy the bull market in US stocks, or even burst the bubble. However, judging from several past rate hike and cut cycles, the market has not suffered any substantial impact. Especially during Powell's tenure, due to his excellent communication skills, the market was able to anticipate changes in monetary policy one to two quarters in advance. Therefore, it can be concluded that "unforced" normal interest rate adjustments will not affect the market; only unexpected adjustments will lead to market volatility.
More importantly, the US stock indices themselves have not shown any signals of transitioning from a bull to a bear market. On the monthly chart level, taking the S&P 500 as an example, the most recent round of nine pullback signals has completed its adjustment, and earlier signals experienced similar situations. Until it falls below 6353, there is absolutely no technical basis for a reversal, and before reaching that point, the previous high near 7000 provides support.
But does this mean that an eternal bull market is completely without risk? The answer is naturally no. There are two core events in the second half of the year that deserve more attention than changes in interest rates. The first is the variable of the midterm elections, which was mentioned at the beginning of the year; although the topic is not very hot right now, there will be no shortage of political maneuvering when the time comes. The second risk is the geopolitics of the Middle East, which we lean towards potentially reopening in the fourth quarter. In fact, looking at the news of the strikes on Iran over the past weekend, it is not difficult to see that it is extremely easy to backtrack and alter the situation, as the initiative is completely in Trump's hands. Once he feels the need to capitalize on the Iran issue, or judges that there is an opportunity to completely resolve the Middle East topic, attacking Iran again will just be a matter of time. If we look at these two events in combination, then the fourth quarter is very likely to be the real major test for the market.
Regarding the AI frenzy and the bull market supported by trillions of dollars in capital expenditure, I personally remain cautious in the long term. However, for traders, the current rhythm can still be maintained for the next 3 to 4 months. For example, you can rely on the 7000 level to look for opportunities to go long on S&P index pullbacks. Entering October, however, you will need to be more flexible; once the two aforementioned topics significantly heat up, you must be prepared to reduce your positions or even retreat altogether.
In terms of strategy, the long Euro futures initiated last week were executed at 1.1420, with the stop-loss and targets remaining unchanged: the stop-loss is set below 1.1300, and the targets are set at 1.1770 and 1.2420 (half for each).
As for crude oil, with the execution of the long orders at the price of 70, all pending orders have been completed. The average price of the long positions is 75, the stop-loss is set at 60, and the targets are set at 95 and 115 (half for each).
$United States Oil Fund LP(USO)$ $WTI Crude Oil - main 2608(CLmain)$ $Micro WTI Crude Oil - main 2608(MCLmain)$ $E-mini Crude Oil - main 2608(QMmain)$
Regarding new strategies for this week, there are temporarily no new trading opportunities. However, the weekly chart for gold futures has entered its ninth signal this week, so a certain degree of rebound correction is expected, and appropriate attention can be paid to short-term opportunities. In the medium term, I am more inclined to look for shorting opportunities within the 4800-5000 range.
$Gold - main 2608(GCmain)$ $E-Micro Gold - main 2608(MGCmain)$ $E-mini Gold - main 2608(QOmain)$
P.S. If the trade can reach its first target, the stop-loss will automatically be adjusted to the entry level. If there are any adjustments after execution, updates will be provided in subsequent articles.
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