The impasse of range-bound trading at elevated levels in the U.S. equity market remains unresolved.
On the one hand, September seasonality, defensive positioning by institutional investors, and the potential seasonal tendency for the VIX to rise all suggest that a strong short-term rally is unlikely. On the other hand, robust corporate earnings and the fact that equity-index P/E multiples have not expanded materially are limiting the downside for U.S. equities. My conclusion for the U.S. market over the coming week is therefore as follows: taking all factors into account, U.S. equities are more likely to remain range-bound at elevated levels than to enter a one-way decline. At the same time, we should pay attention to a new opportunity at relatively depressed levels: commodity indices are historically low relative to U.S. equities, which remain near their highs. If U.S. equities do not quickly enter a sharp decline, raw materials, energy, and agricultural commodities may have an opportunity to catch up.
U.S. Equities Remain Range-Bound with a Bearish Bias
According to the latest Bank of America fund-flow data, global equity markets continued to record net inflows through last week, whereas U.S. equities experienced net outflows. Moreover, outflows from U.S. equities accounted for most of the outflows from global equity markets, making them the primary driver:
Data from Goldman Sachs’ prime-brokerage business also show that institutional investors’ gross and net leverage in U.S. equities edged higher in the latest week, but remained cautious overall, with net leverage clearly skewed to the bearish side.
Specifically, aggregate gross leverage on institutions’ books rose by 2.7 percentage points to 305.9%, while net leverage increased by only 0.1 percentage point to 76.9%. Within fundamental long/short strategies, gross leverage rose to 204.2%, but net leverage declined to 52.7%, placing it in the lower range of the past year. This indicates that institutions have not materially withdrawn from all risk exposures; rather, they are reducing directional risk by adjusting their long/short positioning.
The options market, however, is showing a different kind of contradiction. For one-month S&P 500 options, call skew is clearly higher than put skew:$标普500ETF(SPY)$ $标普500(.SPX)$ $SP500指数主连 2609(ESmain)$ $微型SP500指数主连 2609(MESmain)$ $标普500波动率指数(VIX)$
This suggests that some traders are withdrawing substantial capital from the equity market while simultaneously using highly leveraged derivatives to bet on further gains, out of concern that they may miss a potential upside move. This mismatch—institutions defending their portfolios while traders chase the rally—often causes the market to remain range-bound at elevated levels rather than immediately choosing a clear direction.
Why I Am Not Directly Bearish
Although bearish signals have increased, it is not currently appropriate to simply conclude that U.S. equities are about to suffer a sharp decline.
First, earnings data for S&P 500 constituents remain strong. Nvidia’s latest earnings report was still impressive, and demand for AI infrastructure and capital expenditure have not yet shown clear signs of peaking in the short term. At the same time, earnings growth among S&P 500 constituents excluding AI-related stocks is also improving. This indicates that growth across the AI value chain is not confined entirely to a small number of industry leaders; it has already begun to spread to a broader range of companies:
$标普500ETF(SPY)$ $标普500(.SPX)$ $SP500指数主连 2609(ESmain)$ $微型SP500指数主连 2609(MESmain)$ $标普500波动率指数(VIX)$ $英伟达(NVDA)$
来源高盛研报
Second, although the S&P 500 has risen substantially year to date, its overall P/E multiple remains in the low-to-mid-20s and has not expanded sharply at the same time.
This shows that the primary driver of the index’s rise remains earnings growth, rather than a purely valuation-driven expansion. For this reason, although rising yields are exerting pressure on equities, their impact may not be as severe as initially expected. At least before the midterm elections, a broad, weekly-chart-level collapse appears unlikely.
Therefore, the more reasonable assessment at present is that U.S. equities are in a high-level consolidation phase with a bearish bias. Seasonal factors and the structure of fund flows are limiting the upside, while strong earnings are providing support. The probability of continued consolidation is higher than that of an immediate sharp decline.$纳指100ETF(QQQ)$ $纳斯达克(.IXIC)$ $NQ100指数主连 2609(NQmain)$ $微型NQ100指数主连 2609(MNQmain)$ $标普500ETF(SPY)$ $标普500(.SPX)$ $SP500指数主连 2609(ESmain)$ $微型SP500指数主连 2609(MESmain)$ $标普500波动率指数(VIX)$ $道琼斯指数主连 2609(YMmain)$ $微型道琼斯指数主连 2609(MYMmain)$ $道琼斯(.DJI)$
Seasonal Risks in the VIX
September has historically been a relatively weak month for the S&P 500, while February, May, August, and October also frequently experience relatively high volatility. At the same time, the VIX has a seasonal tendency to rise over the medium term, suggesting that it will be difficult for the market to establish a sustained and smooth uptrend in the short term.
However, after the VIX falls below 15, it has historically often remained at low levels for an extended period. Therefore, for now, we can only conclude that the room for further downside in the VIX may be limited and that a rebound is likely at some point. It is still too early to determine whether that rebound will occur this week or only after several weeks.
The Nasdaq has also formed a consolidation triangle and is waiting for a breakout. Once the VIX begins to rebound and the Nasdaq breaks to the downside, market volatility could increase significantly. Before those signals actually appear, however, selling short prematurely could still result in repeated reversals at elevated levels.
Selling Puts to Navigate Consolidation
In a market with no clear direction, where a sharp decline has not yet been confirmed, selling out-of-the-money puts remains a relatively suitable strategy. By selecting strike prices sufficiently below the current market price, traders can collect premium income when the market moves sideways or rises moderately, while leaving some room for a gradual market pullback.
Of course, selling puts does not mean that the strategy is risk-free. If the equity index falls below a key strike price, the position must be closed or adjusted promptly. Potential losses cannot be ignored simply because premium has already been collected. The core of the strategy is not to seek a profit on every trade, but to capture time value during periods of consolidation while keeping risk within an acceptable range.
The Catch-Up Opportunity in Commodities
The truly counterintuitive signal worth watching comes from the relative valuation relationship between commodities and the S&P 500. The ratio of a broad commodity index to the S&P 500 has fallen to an extremely low level not seen since 1970, coming close to its historical bottom:
This means that prices of AI-related assets and broad-market indices have already risen substantially, while raw-material prices—including copper, iron, rare metals, tungsten, germanium, and molybdenum, as well as energy and agricultural commodities—have not undergone a corresponding revaluation. As the AI value chain continues to expand, demand for related metals and energy may continue to increase, creating the possibility of catch-up gains in these overlooked raw-material assets.$能源ETF(159930)$ $COMEX铜主连 2612(HGmain)$ $微型铜主连 2612(MHGmain)$ $英伟达(NVDA)$ $谷歌(GOOG)$ $特斯拉(TSLA)$ $苹果(AAPL)$ $微软(MSFT)$ $Meta Platforms, Inc.(META)$ $亚马逊(AMZN)$
Accordingly, two conditions should be monitored going forward. First, will U.S. equities continue to consolidate at elevated levels rather than rapidly collapse? Second, will the VIX rise materially and trigger a broad contraction in risk assets? If U.S. equities do not quickly enter a sharp decline, the extreme undervaluation of commodities relative to U.S. equities may become a trading opportunity worth tracking in the next stage.
Trading Strategies Worth Watching
First, based on the analysis above, the risk of a gradual rise in 10-year and 30-year Treasury yields is unlikely to dissipate in the short term. The AI growth cycle has not yet peaked, and the pricing impact of higher demand for related raw materials and AI downstream products has not yet been fully transmitted through the broader economy. This means that inflation risks are unlikely to reverse in the short term. Even if the Treasury increases the amount of debt it issues, this may still be insufficient to offset the substantial burden of interest costs and corporate borrowing demand. As a result, higher long-term Treasury yields—or, more precisely, a prolonged period of elevated yields—may become the new normal. Against this backdrop, continuously rolling short-dated index put positions, as well as repeatedly selling puts on banking-sector ETFs, are opportunities worth considering.
From a technical perspective, the previous low in QQQ can be used as a reference for selecting a lower strike price, with the positions rolled on a weekly basis.
$纳指100ETF(QQQ)$ $纳斯达克(.IXIC)$ $NQ100指数主连 2609(NQmain)$ $微型NQ100指数主连 2609(MNQmain)$
For XLF, the price level below the previous-low breakout area can likewise be used as a reference for the put strike price.
In addition, given that the sharp decline in the semiconductor sector has only recently passed and that risk has been substantially released, we may also consider repeatedly selling weekly puts with strikes below Nvidia’s previous technical support level.
Second, we may consider buying bullish exposure to the VIX on market pullbacks. This would both prepare for a potential rebound in the VIX and partially hedge the risks associated with the bullish equity-index positions described above.
Third, we should also monitor the U.S. Dollar Index, which has recently surged above its 20-day moving average.
Fourth, regarding the logic for anticipating a rebound in the VIX, traders willing to take on higher risk in exchange for potentially greater returns may consider a long-straddle approach. This involves initiating a light position by purchasing at-the-money calls and puts on QQQ with approximately two weeks to expiration. Once the VIX rebounds, the position should be closed immediately to realize profits. This is the essence of the long-straddle strategy. However, the greatest risk with this approach is holding the position for too long. If profits have not been realized within one week, the position should be closed promptly. In addition, if the VIX falls below the low level of 15, the position should also be closed to limit losses.$纳指100ETF(QQQ)$
Whenever the U.S. Dollar Index breaks above its 20-day moving average, it tends to be followed by a meaningful advance on the daily chart. If the expected primary upward leg of the current daily uptrend materializes, this could create an opportunity to short the euro. The position can be managed with reference to the euro’s five-day moving average: maintain a bearish view if the euro falls below the five-day moving average, and stop out if it breaks above that level.
Comments