Latest Futures Class Recap: Will This Fed Meeting Burst the AI Bubble?

On Thursday evening I hosted a livestream on whether this Fed meeting will burst the AI bubble, and how we should be positioned for it. There were a great many charts and I moved through them fairly quickly, so not everyone will have been able to follow in real time. What follows is a written walk-through of that session — the key judgements, the charts, and every operating condition I laid out on the night, kept as close to the original as possible.

Let me put the conclusion up front. Holding rates steady in July was in line with expectations, but going into the meeting the probability of “no change” was only 65.8%, whereas heading into past meetings it has typically been above 80% — which tells us the market's expectations for this one were extremely unsettled. After the meeting the Chair's remarks were ambiguous, and that has actually raised the odds of a September hike. Technically, several AI leaders — Micron, the Philadelphia Semiconductor ETF and Microsoft — have completed head-and-shoulders tops and are breaking down one after another. The VIX is back at the bottom of its range, and I believe the risk is only just beginning, so the near term should be about hedging. If you are convinced a hike is coming, the corresponding trade expression is short euro futures (6E). August is the key time window, but this time it is more likely to be a staged low than a high — on the condition that we first see acceleration, meaning a monthly-chart drawdown of 20% or more. Until then, don't try to catch the falling knife.

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I have spent 18 years managing assets across equities, futures and options. I am currently Investment Director at the Shengfa New Materials corporate fund, and I appear as an interviewed guest for Times Finance and 21st Century Business Review. One thing before I start: every one of you has a different capital base, account structure and risk tolerance, so please take everything below only to the extent your own account can bear it.

1. The July meeting: the outcome met expectations, but the pre-meeting odds exposed an anomaly

Start with the historical frame. Fed rate moves usually land on the quarterly meetings — March, June, September and December — so on historical probability a July change is fairly rare. But this time was different: economic data kept flip-flopping and the strait blockade tightened and loosened by turns, so the market's anticipation running into this meeting was clearly higher than usual.

What the market really wanted to confirm was not whether rates moved this once, but the path. The Fed has already stopped cutting and has held steady for five or six consecutive meetings; once it starts hiking, that implies it will follow a hiking path for some time. So the focus was on getting that signal.

The key detail: “no change” was priced at only 65.8% before the meeting

This is the one anomaly I think is most worth writing down from today. I pulled up the CME rate-probability tool to make the comparison:

· The current fed funds target range is 350–375 basis points (3.50%–3.75%).

· Probability distribution on the day of the meeting: no change 65.8%, hike 34.2%, cut 0.0%.

· Whereas heading into past meetings, whether the market expected a move or not, the probability had typically already reached 80% or 90%.

· In other words, more than 30% of money was still betting on a hike going in — the market is progressively digesting the prospect of tightening.

From that we can draw a conclusion about timing: no hike in July means the next meeting is September, and the intensity of a September hike may be greater than it would have been now.

After the meeting: an ambiguous Chair, and a market that read it as hawkish on its own

The outcome was unchanged, as expected. But the point I want to make is that the Chair's posture was not clear. Previously he was very hawkish, stressing that inflation had to be pushed below 2%; this time he was noticeably less insistent on that, and as of the livestream the market still had no clear guidance.

Compare him with his predecessor and it becomes obvious: after the previous Chair spoke, the market could broadly infer that he leaned toward printing money, toward easing. This one, as things stand, is rather erratic — it is genuinely hard to gauge whether he intends to hike. Per the reading from market economists, that very ambiguity implies the odds of a hike in September, or even a little later in October, are relatively higher.

This uncertainty is itself a variable

I want to take volatility out and treat it separately, and to break it down by who you are:

· A financial market with no expectations usually has very little volatility; it is unclear expectations that widen the swings.

· For those of you holding long term: fewer changes and higher certainty are what serve you, so this environment is unfriendly to you.

· For those of you trading short term and able to catch direction: these conditions are actually an opportunity, with returns available over short windows.

· The night after the meeting, swings in AI-related assets had already widened noticeably — set aside up or down; on amplitude alone it was large.

2. The AI complex: head-and-shoulders tops completing one after another, some already in the danger zone

This is the section I want to spend the most time on today. My judgement is not that “AI is finished,” but that structurally several of the leading names have completed head-and-shoulders tops and some have already broken down. Before going into individual names, let me record an observation of my own:

Over the past three years, head-and-shoulders tops have appeared far more frequently in U.S. equities and in commodities than they used to, and once the neckline is broken there is usually a fairly deep decline that follows. So from now on, when you see a stock or an asset trace out this structure, pay very close attention to how well that neckline holds — if it holds and price turns up, fine; if it fails and price goes down, you should expect a deeper decline. When it is time to hedge, hedge.

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(1) Micron (MU): the top is complete, and the measured decline is not finished

One thing to stress: I built this chart before the meeting. The night after it, a large down candle appeared and the head-and-shoulders was formally confirmed — the call came before the outcome, not after it. The measurement is the standard head-and-shoulders projection:

· The head is around $1,200-plus and the neckline around $800-plus, so head-to-neckline is roughly $400.

· The theoretical decline after the break is roughly equal to that distance: 820 − 400 ≈ the $420 area.

· Price was already close to that zone at the time, but on the measurement there is still some downside left.

So the corresponding action is: if you like Micron and want to buy the dip, it does no harm to wait a little longer; if you already hold it and your cost basis came from charging in at a relatively high level, you are better off adding some hedges.

(2) Philadelphia Semiconductor ETF: neckline broken, and I drew the downside on the chart

Next I shifted the lens from single stocks to the sector. The Philadelphia Semiconductor ETF climbed in a straight line from March 2026, rolled over after topping around July, and on the night of the meeting printed a full-bodied down candle with no wicks that broke the neckline outright.

I drew two lines on the chart to describe the space: the yellow neckline sits around the 90 area, and the red line below runs across the low zone from September 2025 to July 2026 (around the 60 area). I then drew a vertical red line connecting the high to that lower red line, to show visually that if the yellow line breaks, the downside can look back to the prior lows.

(3) Microsoft: same structure, but the neckline has not broken — that is the explicit risk-control level

Microsoft shows the same head-and-shoulders structure, with left shoulder, head, right shoulder and neckline all clearly visible, and the yellow neckline sitting around the 400 area. I circled several staged highs and the top zone on the chart. What differs from the previous two is that Microsoft has not yet broken its neckline.

I define that level as the explicit risk-control point: whenever it breaks, that is the moment you decide whether to cut position size.

(4) One characteristic of U.S. equities to remember: declines compound as they go

U.S. equities have this feature where the further they fall, the heavier it gets. Right now the decline is not especially fast, but once panic sets in later the fall accelerates, and all comparable stocks and indices amplify the drop together. So set your risk controls at your technical levels in advance rather than thinking about it once panic arrives.

On whether the decline so far is reasonable, let me draw a distinction of perspective. This entire AI move was in fact set off in March and April of this year, and many AI names doubled or tripled after that. If you measure the drawdown from the absolute high, of course it is large; but measured from the starting point of a medium-to-long-term observation, returning to the zone where the rally began is a normal amplitude in technical terms — it only feels violent because speculative sentiment beforehand was so strong. I have been flagging this risk consistently, as I recall, since the end of June.

3. The VIX: the risk is only just beginning

The VIX is in essence a chart of options-price volatility. When panic appears in the market and default risk rises, volatility lifts and the VIX spikes quickly. It normally travels within a range, and since 2024–2025 the bottom of that range has been roughly the 17 to 18 level.

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· Each time it falls back near that lower band, some piece of news or some situation tends to appear that drives a large move in the index.

· Both last year and in March and April this year it reached the 20s.

· If more bearish news comes out, reaching 30 would not be surprising.

· At the time the VIX had just turned up from near the yellow line, sitting around the 20 area.

So from this data my conclusion is: U.S. equities do carry risk right now, and that risk is only just beginning. The response is to reduce your own exposure to volatility while hedging is still available — because buying in after the decline is over is far easier than absorbing the swings halfway down.

4. If you are convinced of a hike, what is the trade: my dollar-tide model and euro futures

Everything so far has been about hedging. If you want to actively make money from this leg of tightening, I would point to two directions: euro futures, which will be more familiar to those of you who trade FX; and for those with the capability, going long VIX-related products. Below I focus on the euro, and the starting point for the reasoning is a dollar cycle model of my own.

The dollar-tide model: built ten years ago and tracked ever since

This is a regularity I discovered roughly ten years ago, and after more than a decade of live-trading verification and tracking I believe it remains valid to this day. Presenting the model in full could take three hours; time is limited, so I will take only the key points. The overall structure is:

· A dollar appreciation cycle of about 5 years, driven by rate hikes or by dollar repatriation.

· Then a transition into a depreciation phase of about 6 years.

· The remaining roughly 6 years are a choppy process where the regularity is not strong enough.

On this model, we are currently inside that 6-year depreciation cycle. And that cycle divides further into three segments of roughly two years each; on the chart I marked the corresponding market behaviour for each:

This year's action, in my view, validates the model: U.S. equities are not in an outright broad bull market, but AI names have swung enormously and the gains in the Nasdaq and the S&P have been far from small — consistent with the description “late depreciation = bull market in equities and commodities.” The crucial part is this: that favourable stretch essentially ends in 2026.

At the cycle turn, the dollar produces a rapid surge

On the historical pattern, when a depreciation cycle ends the dollar index usually produces a sudden upward surge. On the long-horizon dollar chart I circled three positions: around 1991, around 2008, and the current position at the far right in 2026 — in that last circle I put a question mark.

· The acceleration lasts roughly 3 to 4 months.

· In magnitude, the dollar index could run from 100 all the way to 115, about 15%.

· The trigger this time looks very likely to be a Fed hike — and I do not consider that probability small.

Euro futures (6E): risk control comes down to one neckline

If the dollar appreciates, the euro — the currency most closely tied to it — depreciates in relative terms. So I would point you toward shorting euro futures, ticker 6E. The reason for choosing it is that the technical picture is clean and the risk control is easy to define:

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· The neckline is already clearly drawn, around the 1.15 area, and price ranged at that high level for a long stretch after June 2025.

· Price has now broken below and is retesting that neckline; despite a small bounce on the night of the meeting it is still operating near and beneath the neckline.

· The risk-control rule is simple: the moment it climbs back above the neckline, holds, and turns up again, that tells me my read is wrong and I cut the position.

· In terms of room, corresponding to a roughly 15% rise in the dollar index, euro futures could go from 1.15 back to 1.10 or even the 1.0 level.

The merit of this setup lies exactly in the clarity of that line: if price goes back through it, you admit you were wrong and exit; if it does not, the downside will not be small.

5. The August window: this time it is more likely a low than a high

The final section returns to the indices and to timing. First the time frame: U.S. equity valuation has several notable time points — February, May, August and October. And August happens to fall in the third quarter, and ahead of the midterm elections.

Seasonal statistics: the second and third quarters of a midterm year are the high-risk zone

I used a chart of four-year election-cycle statistics to support this timing judgement. It splits the four years into “post-election, midterm, pre-election, election year,” divides each into four quarters, and uses colour blocks to mark two regions:

The Nasdaq's −6.8% in the danger zone is the worst of the three indices, while its +29.4% in the sweet spot is the best — which is precisely why I treat August as a turning point rather than simply a risk period. So within Q2 and Q3, both May and August are timing inflections to be wary of.

The key difference: this August is more likely a low than a high

But there is one way this time departs from the historical pattern that I want to make clear: because the index is already falling now, August is more likely not a high but a staged low.

But buying the dip has a precondition: you must first see acceleration

This is the strictest piece of operating discipline I am giving today. The preconditions for buying the dip are:

· “Acceleration” has an explicit definition: on the monthly chart, a drawdown of 20% or more from the high to the low.

· If August produces that kind of acceleration with a sizeable drawdown, it is appropriate to do some bottom-fishing.

· If we are only where we were at the time — partway into a decline that has just begun — do not rush to fish for a bottom. On that I am explicitly against it.

· The discipline for going long short term: do not turn bullish before price reclaims the 20-day moving average; only once it does do I consider this window of risk to be over.

· There is no need to hurry on timing: August is long, not necessarily the first or second week — the low might not come until the end of the month.

Put it this way: when a decline is accelerating and you try to catch the falling knife, you will not catch it, and it will often break through a great many of your risk-control levels. So it is better to let the acceleration finish; buying in after the index has completed that acceleration carries a relatively higher win rate.

Nasdaq technicals: consolidate too long at 30,000 and it breaks lower

The Nasdaq had been unable to push through 30,000 for some time. Here I would quote an old market saying — the Cantonese version is that when something refuses to pick a direction and ranges for too long, it tends to choose the downside. This time was fairly close to that: it ranged for a long while and finally could not hold, and went down. On the chart I also marked two event points: “memorandum signed” at the high zone around June 2026, and “reports of U.S.–Iran talks” at the April 2026 low.

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On the shorter horizon I use the 20-day moving average as the threshold for turning bullish — price has already fallen back near the average and turned down, so before it reclaims that line, there is no hurry to look for upside.

The long view: the 20-month moving average is still strong support, around 25,000

But keep the long and the short horizons separate. I explicitly do not think this decline is the start of a long-term downtrend:

· For the long term, watch the 20-month moving average. This Nasdaq decline is merely a correction of that large advance in March and April.

· Unless price breaks well below that line, it is strong support — and I do not think it gets broken that quickly in the near term.

· That strong support sits around 25,000; the index was at 27,000-plus at the time, leaving roughly 8% of downside (about 10% if measured generously).

· Once price reaches the 25,000 area, you can begin watching for bottom-fishing.

On execution I want to separate two groups of people: those trading short term, especially futures with leverage, will see large swings in their assets and must manage risk carefully; those without leverage who want to hold long term need only track that one line, the 20-month moving average.

Let me collapse the logic into one line: near term, mind the danger and wait for the market to accelerate in August. If that acceleration does come, it is not the risk — it is our moment to deploy. I will track how the market develops with you again in August.