To The Moon

This Week’s Highlights

1. The U.S. Treasury will at least double the size of its liquidity-support buybacks for Treasury securities maturing in 10 to 30 years, raising the cap per operation from USD 2 billion to at least USD 4 billion. This measure may help stabilize the long-term bond market temporarily and suggests that the Treasury may be seeking to keep long-term yields near 5%. However, Treasury buybacks are not equivalent to the Federal Reserve purchasing bonds with newly created money through quantitative easing. They more closely resemble replacing long-term debt with short-term debt, and therefore cannot fundamentally eliminate the pressure from high deficits, elevated interest costs, and excessive long-term bond supply. If the market instead questions the government’s ability to support the market, the spread between short- and long-term yields could widen further.

2. Long-term Treasury yields remain the key variable for global risk assets. Yields on 20- to 30-year Treasuries are currently still above 5% and moving within a narrow range. If long-term yields break higher again, it would indicate growing concerns about U.S. fiscal conditions, inflation, and debt supply. Investors may monitor trading opportunities arising from a widening short–long yield spread. Conversely, only a meaningful decline in long-end yields would ease the pressure that long-term bonds are exerting on richly valued U.S. equities.

3. U.S. equities remain in a high-level, range-bound bearish phase, with the 20-day moving average serving as the short-term risk boundary. The S&P 500 has fallen below its 20-day moving average, while the Nasdaq is also under pressure from a bearish engulfing candle on the weekly chart. If the breakdown is confirmed this week, the market’s downside may exceed its upside. Until the indices reclaim key levels, investors should not rush to add to long positions. The Jackson Hole symposium and Nvidia’s earnings report could become important catalysts for breaking the market’s balance and triggering a directional move.

4. Gold should not be chased higher in the short term. Gold prices have rebounded rapidly and reached elevated levels, while the magnitude of the advance and the number of acceleration phases are already substantial. CTA and speculative positioning on the long side also appears relatively crowded. If risk appetite weakens, gold could experience profit-taking or even a sharp corrective decline. In the short term, it is therefore more appropriate to wait for a pullback or consider positioning at higher levels, rather than blindly chasing the rally.

5. In a range-bound market, investors should focus on risk limits and time-value strategies. Before major events are resolved, one may consider selling QQQ or gold puts at lower strike prices to collect time value. However, short-option strategies must have clearly defined stop-loss rules. Once the price breaks decisively below the strike price, risk exposure should be reduced promptly. At this stage, the key is not to predict a single direction, but to wait for yields, key index moving averages, and event outcomes to provide confirmation before increasing exposure.

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Weekly Market Overview

From August 17 to 21, the U.S. Treasury announced that it would raise the size of each liquidity-support buyback operation for 10- to 30-year Treasury securities to at least USD 4 billion, with the aim of easing selling and liquidity pressure at the long end of the curve. The announcement briefly pushed yields lower, but the effect was relatively short-lived. At the same time, tensions in the Middle East showed no substantive improvement, while risks to crude-oil supply and shipping pushed oil prices higher. The rise in energy prices brought inflation risk back into asset pricing and reduced the market’s confidence in further monetary-policy easing.

As a result, the focus of the equity market shifted from “Can earnings support elevated valuations?” to “Can valuations absorb high interest rates, heavy fiscal supply, and renewed inflation pressure?” This was the common backdrop for faster sector rotation, the relative pullback in technology stocks, and pressure on the equity–bond yield spread.

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1. Market: Indices Declined as Health Care and Energy Outperformed

The SPDR S&P 500 ETF (SPY) fell 1.38% this week. Of the eleven sectors, only three rose while eight declined. Health care (XLV) led with a gain of 4.33%, followed by energy (XLE, +2.79%) and materials (XLB, +1.90%). Information technology (XLK, -3.49%), utilities (XLU, -3.48%), and industrials (XLI, -3.16%) recorded the largest declines.

$SPDR能源指数ETF(XLE)$ $高科技指数ETF-SPDR(XLK)$

Compared with the previous week, the market shifted from broad-based gains in technology to a clear rotation toward defensive and resource sectors. Information technology, materials, consumer discretionary, and industrials had all performed strongly in the prior week, whereas technology and industrials pulled back significantly this week. Health care accelerated from a moderate gain in the previous week to 4.33%.

The decline in the indices was driven mainly by high-weight growth sectors. However, the outperformance of health care, energy, and materials shows that capital did not exit equities across the board; rather, investors reduced exposure to richly valued growth styles. The leadership structure was more consistent with earnings recovery and valuation rotation, indicating that the market was repricing richly valued assets, cyclical expectations, and rate-sensitive sectors.

$英伟达(NVDA)$ $SK海力士(SKHY)$

Figure 1 | Weekly Performance of the 11 U.S. Equity Sectors (Dashed Line: S&P 500)

2. Valuation: Technology, Health Care, and Industrials Are Expensive; Energy Retains Relative Support

According to Worldperatio data, based on trailing P/E ratios, information technology (XLK) had the highest valuation at 32.84x. Real estate (XLRE) and health care (XLV) followed at 32.72x and 30.53x, respectively. The S&P 500 (SPY) stood at 24.90x, while energy (XLE) was valued at 22.21x.

Relative to historical ranges, technology is already in an overvalued range based on the past ten years and in an expensive range based on the past twenty years. Health care, industrials, and consumer staples are in expensive ranges over both the past ten and twenty years. Materials are also overvalued based on the past five and ten years.

Although real estate has the second-highest absolute P/E, its valuation remains in an undervalued range relative to the past ten and twenty years. This suggests that its high P/E is influenced more by the sector’s earnings base and historical valuation midpoint, and should not simply be treated as the same type of valuation risk as technology.

Figure 2 | S&P 500 Sector P/E Ratios and Relative Historical Valuations

The S&P 500’s fundamentals remain relatively sound, and expectations for earnings per share remain favorable. Earnings growth continues to be an important support for the index. However, the P/E valuation has not declined as earnings have improved; instead, it has continued to rise. This means that the S&P 500’s recent gains have relied increasingly on valuation expansion.

According to institutional forecasts, the upward trend in S&P 500 EPS may be approaching a peak. If EPS growth slows while the P/E multiple remains elevated or continues to rise, earnings will have less capacity to absorb the valuation. The index would also become more sensitive to changes in interest rates, earnings disappointments, and a deterioration in risk appetite.

Figure 3 | S&P 500 Forward 12-Month P/E vs. the Ten-Year Average

3. Rate Constraint: U.S. Equity Risk Premium vs. Treasuries Has Turned Negative

The core conclusion for this week’s strategy is that, with the earnings yield at approximately 5.0%–5.1%, if the 10-year Treasury yield remains above 4%, the static compensation that equities offer relative to the risk-free rate has narrowed substantially. In other words, the ability of U.S. equities to sustain elevated valuations depends increasingly on earnings growth, growth expectations, and liquidity expectations.

A negative spread does not mean that equities must fall. It indicates, however, that the static earnings compensation received by investors is below the risk-free rate. Elevated valuations therefore depend more heavily on earnings growth and a decline in interest rates. If long-end rates remain high or earnings reports disappoint, valuation volatility could be amplified.$美国10年期国债收益率(US10Y.BOND)$ $20+年以上美国国债ETF-iShares(TLT)$

Figure 4 | S&P 500 Earnings Yield Minus the 10-Year Treasury Yield (Monthly)

Community Views This Week

@程俊Dream: U.S. Equity Technicals Turn Bearish? Several Opportunities Worth Watching (Recent Yield Sharing)

Following news of the U.S. Treasury’s bond purchases, gold reacted most quickly. However, in terms of both absolute gains and the pace of appreciation, Bitcoin—with its inherently higher volatility—also staged a catch-up move and overtook the initial leader. Major global equity indices, including U.S. equities, remained relatively calm. Unless new major developments emerge, most risk assets appear to have theoretical potential for catch-up gains going forward.

The S&P 500 and Dow Jones had already registered new highs, so recent attention will continue to focus on the Nasdaq. The bearish engulfing candle on last week’s weekly chart was not encouraging. Most of the decline occurred in the first half of the week, while the market failed to rebound significantly in the second half despite favorable developments. Short-term pressure therefore remains. For the Nasdaq, a move back above 30,343 would be needed to signal the return of the bulls. Earnings reports from key companies this week could provide important guidance. Unless the index breaks below 27,000, the worst-case scenario for the market would still be range-bound trading at elevated levels.

Macro Strategy Summary

For this week’s strategy, the previously established long position in euro futures was filled at 1.1420. As the recent move has begun, the stop-loss has now been raised further to 1.1570. The targets remain unchanged at 1.1770 and 1.2420, with half the position allocated to each target.

For crude oil, continue holding the long position, with an average entry price of 75. As the market has become more stable, the stop-loss will be raised to the entry level. In practice, a level below 74 may be more consistent with the trade logic. The targets remain unchanged at 95 and 115, with half the position allocated to each target.

For gold, after last week’s sharp advance, there is clearly no longer a need to attempt to establish long positions at lower levels. However, sell orders at higher levels will remain in place. Priority should be given to short opportunities: place limit sell orders at 4,830 and 5,170, with half the position at each level. The stop-loss is 5,275 and the target is 4,000.

P.S. If the trade reaches the first target, the stop-loss will automatically be adjusted to the entry level. Any subsequent adjustments after execution will be provided in future articles.

@Ivan_Gan: Treasury’s Large-Scale Rescue May Not Be Good？ Be Cautious Chasing Gold Higher

The U.S. Treasury announced that it would “at least double” the size of its liquidity-support buyback operations for Treasury securities maturing in 10 to 30 years, raising the cap per operation from USD 2 billion to at least USD 4 billion. Relative to the USD 31 trillion U.S. Treasury market, this buyback volume is negligible. Nevertheless, the move conveyed two messages to the market. First, long-term bond yields are too high, and the Treasury intends to exert some control over them. Second, Treasury yields around 5% may represent a psychological threshold for the U.S. Treasury; if yields deviate too far from that level, more forceful intervention could follow.

Treasury buybacks largely involve replacing long-term debt with newly issued short-term debt. In substance, they do not create additional money and are not quantitative easing in the financial sense. Although issuing low-interest short-term debt and purchasing higher-yielding long-term debt to capture the spread may appear reasonable, this approach may overlook its impact on market confidence. If the Treasury’s efforts to support the market are poorly executed, they could instead accelerate the widening of the spread between short- and long-term bonds.

Three changes in the market trend should be monitored closely:

1. Watch for a breakout in long-term Treasury yields. Yields on 20- to 30-year Treasuries are currently above 5% and moving within a narrow range. Investors may wait for a breakout in long-term yields before considering a widening short–long yield spread trade: going long 10-year Treasury yield futures and short 2-year Treasury yield futures.

2. Gold has rebounded to its expected price; wait for a clear rate direction. The long-term Treasury buyback has temporarily affected expectations for interest-rate hikes, but whether rates will actually be raised remains unresolved. I therefore do not expect gold to continue its bullish run in the short term. A technical rebound after four consecutive months of declines is also consistent with historical patterns, so short-term investors may consider taking some profits.

3. U.S. equity indices are in a sensitive August window; watch the 20-day moving average closely. August is a sensitive period for U.S. equity indices. Investors should continue to monitor the 20-day moving average and prepare for potential risks. The Nasdaq and S&P indices are currently trading near their 20-day moving averages. If they break below those averages again next week, it may be advisable to temporarily exit the equity-index market and wait for the trend to become clearer before re-entering.

Macro Strategy Summary

The U.S. Treasury’s unexpected increase in long-term bond buybacks last week had a negative impact on the market. However, the ultimate follow-through will depend on next week’s nonfarm payrolls report.

1. The Nasdaq and S&P 500 both pulled back to their 20-day moving averages. This week, the key issue is how strongly those averages provide support. If previous strategies are stopped out, remain on the sidelines.

2. Gold has entered a high-pressure zone. Those who bought the dip previously may consider taking profits.

3. The rolling short-put strategy on equity indices did not generate a profit last week. The options positions were actually profitable at expiry, but the Treasury’s announcement caused a sharp increase in margin requirements related to equity-index options. Without adding margin, positions were forcibly reduced at an unrealized loss, eliminating the profit.

The rolling strategy of opening new positions will continue this week. Implied volatility for options has risen slightly, and Nasdaq puts with strike prices more than 8% below the current price may be considered for sale.

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@Owen_trading room: Why I Think Going Long U.S. Stocks and Gold Ahead of Jackson Hole Isn't a Good Idea

According to Bloomberg estimates, the U.S. Treasury has just announced an increase in the size of its long-term Treasury buybacks: at least USD 2 billion more per operation. On an annualized basis, this amounts to additional purchases of roughly USD 70 billion, equivalent to reducing the supply of 20- and 30-year bonds by approximately 16%. Goldman Sachs estimates that these buybacks will absorb close to one-third of long-term bond issuance.

This may look like a move resembling quantitative easing, but compared with the pace of debt expansion, it remains a drop in the ocean. According to data released by the U.S. government, it recently took only 95 days for government debt to increase by USD 1 trillion, implying an average daily increase of more than USD 10 billion. Total debt has only recently crossed USD 40 trillion, whereas it reached USD 30 trillion in January 2022. Interest payments in 2026 have already exceeded USD 1 trillion. At the current pace, total debt could very likely reach USD 41 trillion or more—the statutory debt ceiling—in roughly the next five months.

Therefore, the greatest significance of this buyback program is that it tells the market the government is not standing idly by. However, it is far from sufficient to dispel concerns about rising yields. In a sense, it also exposes the government’s limited policy tools for dealing with a loss of control over long-term yields. Market concerns about the creditworthiness of dollar assets and the supply–demand balance in U.S. Treasuries have not disappeared.

The S&P 500’s break below its 20-day moving average is the market’s most direct technical warning at present. If this breakdown is confirmed this week, the market could trigger the so-called U.S. equity “curse” associated with February, May, August, and October, four months that are prone to major volatility. Even if volatility is not fully released immediately, the risk could be postponed and concentrated in October. Overall, U.S. equities remain in a high-level, range-bound bearish configuration, with less upside potential than downside risk.

The 10-year and 30-year Treasury yields remain in elevated bullish trends, while the 30-year yield is still above 5% and has not broken below a key level. As long as this yield fails to decline meaningfully, the risk premium on long-term bonds will continue to compress equity valuations, providing a rationale for selling U.S. equities at elevated levels.

One of the most important variables this week is Kevin Warsh’s communication on monetary policy at Jackson Hole. If Warsh sends a hawkish signal, short-term rates rise and expectations of rate hikes increase, directly pressuring equities. If he leaves rates unchanged or adopts a dovish tone, short-term yields may decline, but the market may then worry that inflation is not under control. Long-term Treasury yields could rise as inflation expectations increase, causing the yield curve to steepen further. Even if Warsh avoids making an explicit statement, the lack of policy guidance could likewise prompt a flight to safety. Whichever end of the curve moves higher, it will not be good news for U.S. equities at elevated valuations.

Gold’s advance has exceeded my previous expectation of a roughly 10% rebound. After gold futures reached a high of 4,750, prices accelerated rapidly from the bottom and have already gone through three acceleration phases. There is a risk that upward momentum is becoming exhausted, so a technical top forming in the short term would not be surprising.

At the same time, the stock market’s break below its 20-day moving average indicates that risk appetite is weakening. Although gold has safe-haven characteristics, it can also be sold when sentiment toward risk assets deteriorates, as investors take profits and reduce overall risk exposure. Accordingly, the more appropriate strategy at present is to wait rather than chase prices higher. Over the longer term, if gold retreats from elevated levels to lower levels, it may once again offer an opportunity to move higher.

Macro Strategy Summary

Strategy 1: Leave approximately 6% of downside room from elevated levels and use that room to sell puts with lower strike prices, collecting time value. As an example, for QQQ, put strikes below 661 may be considered as a reference. The premise of any short-option strategy is strict stop-loss discipline. Once the price breaks decisively below the strike price, the risk exposure must be managed promptly.

Strategy 2: Continue considering the sale of gold puts to collect time value. The area below the 20-day moving average of the continuous gold-futures contract—approximately below 4,413—may be used as a reference zone for weekly put strikes. Stop-losses should be implemented promptly if the price falls below the strike price.

Follow-Up on Last Week’s Strategy Results

Cheng’s Strategy Last Week

The previously established long position in euro futures was filled at 1.1420. As the recent move began, the stop-loss was raised to 1.1520. The targets remained unchanged at 1.1770 and 1.2420, with half the position allocated to each target.

For crude oil, the long position had an average entry price of 75. Although the position rebounded strongly, it had not yet reached the first target, so the short-term view remained range-bound. The original plan was therefore maintained temporarily, with the possibility of raising the stop-loss further. The stop-loss was set at 60, and the targets were 95 and 115, with half the position allocated to each target.

Gold orders remained in place this week, with minor adjustments. Priority was given to short opportunities: limit sell orders were placed at 4,760 and 5,170, with half the position at each level. The stop-loss was set at 5,275 and the target at 4,000. Limit buy orders were placed at 4,215 and 4,065, with a stop-loss at 3,955 and targets at 4,510 and 4,695. Both sets of limit orders remain valid until canceled.

Results: The long euro and long crude-oil positions were both profitable. The limit orders to short gold at higher levels and buy gold at lower levels were not triggered.

Gan’s Strategy Last Week

The strategy continued to reflect the market’s optimistic bias from the previous week, with no major changes. The rolling short-put strategy on equity indices generated a 1% gain last week, and new positions will continue to be opened on a rolling basis this week. However, implied volatility (IV) for options declined relatively quickly this week, diluting returns. For the Nasdaq, puts with strike prices more than 6% below the current price may be considered for sale.

Result: Profitable.

Owen’s Strategy Last Week

Path 1: Short-option strategies to collect time value.

If the market is highly likely to continue consolidating at elevated levels, rolling short positions in low-strike index puts may be a relatively prudent choice. The opening gap and the 20-day moving average can be used as references for the strike price. Sell puts below the neckline formed by the reference levels, using a seven-day weekly rolling strategy. Prices near 685 may be considered.

Path 2: Options straddle/strangle strategy betting on a gamma squeeze.

The VIX has remained at an extremely low level, generally below 15. Based on seasonality and historical patterns, after the VIX reaches a six-month low it may remain stable for several weeks. However, it may experience a surge one to two months before midterm elections.

When the S&P faces the risk of breaking below its trading range—for example, when the price of the continuous S&P futures contract falls below the lower boundary of the range—one may consider using a small position to implement an options straddle or strangle, that is, buying both puts and calls. Purchase puts and calls with the same expiration date, generally at least 14 days away, and the same or near-the-money strike price. If the equity index experiences a pronounced pullback and triggers panic, one may seek to benefit from a short-term gamma squeeze that drives a sharp increase in the value of the put leg and produces an overall profit.

Monitor the VIX resistance level closely: If, after entering the straddle or strangle, the VIX cannot firmly hold above key levels such as 14.8, or falls below that resistance/support level, it would indicate that volatility has failed to rise. The position should then be stopped out immediately; do not remain attached to the trade.

Path 3: Continue rolling short gold puts at lower levels. Using GLD as an example, one may consider selling puts expiring in approximately six days with strikes below the 20-day moving average. Strike prices near 382 and 381 may be used as references. If GLD falls below the strike price, stop out immediately.

Result: Strategies 1 and 3 were profitable. Strategy 2 recorded a small loss but did not reach its stop-loss condition.