To The Moon

$S&P 500(.SPX)$ $SPDR S&P 500 ETF Trust(SPY)$ $NASDAQ 100(NDX)$ $Invesco QQQ(QQQ)$ $Dow Jones(.DJI)$ $SPDR Dow Jones Industrial Average ETF Trust(DIA)$ $iShares Russell 2000 ETF(IWM)$

This week and next week represent a critical inflection point that could determine the direction of the U.S. stock market throughout September.

At the beginning of this week, we expected the weekly market to form a Morning Star-type candle, reflecting relatively limited fluctuations within a defined range. However, as we approach the end of the week, continued daily declines and the emergence of larger red candles have resulted in a wider downside move than initially expected.

The primary reason for this change is the continued escalation of the U.S.-Iran conflict and attacks on oil tankers, which have intensified concerns surrounding the sequence of rising oil prices → higher inflation → increased expectations for interest-rate hikes and tighter monetary policy.

In particular, the U.S. attack on an Iranian tanker and Iran’s subsequent attacks on U.S. military facilities in the Middle East have further escalated geopolitical tensions. As a result, WTI crude oil $WTI Crude Oil - main 2610(CLmain)$ surged above $100 on Thursday, while U.S. Treasury yields also moved sharply higher. These developments are placing increasing pressure on investor sentiment and strengthening selling pressure across the market.

However, there is one particularly important point to consider.

Despite the magnitude of these negative developments, the actual decline in the stock market has so far remained relatively limited.

As discussed in our August market review, this appears to be because the existing buying-versus-selling supply-demand direction remains biased toward the upside and is still holding relatively firmly, providing support against the downside despite the unfavorable external environment.

However, this balance can change over time.

If negative factors remain unresolved or continue to intensify, the strength of buying demand supporting the downside gradually weakens. Eventually, the market may reach a critical threshold where the existing buying support can no longer absorb increasing selling pressure. Once that threshold is breached, selling pressure can increase rapidly while buying strength weakens sharply, potentially resulting in a much steeper decline.

Therefore, going forward, investors should not focus only on the current magnitude of the market decline. It is equally important to monitor whether the existing buying-side support continues to hold or begins to deteriorate.

Meanwhile, the recently released PPI data was generally in line with expectations. However, long-term Treasury yields rose sharply following the release, while market expectations for a September Federal Reserve rate hike increased to above 70%, significantly reducing the previous expectation of a rate hold in September.

With oil prices still elevated and inflationary pressures remaining uncertain, expectations for continued disinflation have also become less certain. The upcoming CPI report will therefore be an important factor in determining the market's near-term direction.

1. Weekly Market Outlook

Based on the market developments and variables observed so far, the probability of the scenario we previously outlined — that the September FOMC would serve as an inflection point and allow the market's uptrend to extend or resume — has declined significantly.

Instead, the probability of a broader downward or corrective trend continuing through the end of September has increased substantially.

As a result, the weekly trend is now highly likely to confirm a transition from the previous uptrend into a correction phase beginning this week, rather than extending or restarting the existing upward trend.

Given this change in market conditions, we believe investors may want to consider a more conservative approach under the current strategy.

2. Daily Market Outlook

The continued decline throughout this week may trigger some bargain buying and short-term downside support, which could result in limited declines, sideways movement, or range-bound trading next week.

However, the overall daily market environment is still expected to remain biased toward selling pressure. Even if a rebound occurs, it is likely to be temporary and limited in magnitude rather than representing a meaningful trend reversal.

The more significant risk is that a stronger downward move could emerge during the middle to latter part of next week and potentially become more pronounced from approximately two weeks from now.

Taking this into consideration, a conservative positioning strategy may be appropriate under the current market conditions.

Going forward, developments in the U.S.-Iran conflict will remain an important external variable. News related to the conflict could generate significant volatility in oil prices, and changes in inflation expectations could in turn lead to rapid movements in Treasury yields and the broader stock market.

At this stage, our previous expectation of a September uptrend extension or restart has weakened considerably, while the probability of a broader corrective trend has increased.

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