The real large-scale monetary easing may not happen until May next year after Trump takes control of the Federal Reserve, similar to March 2020.

Author: Banmuxia

Introduction

Friends who have seen my strategy sharing on Weibo in 2023 should remember that my market prediction framework is "cycle + liquidity (expectation) + technical pattern." Later, after adding wave theory to the technical analysis aspect, the issues on the cycle level became clearer. After more than a year of adjustment, I have now combined wave theory with the previous analysis framework for predictions. In my own trading log, the accuracy rate can exceed 60%, so this time I want to share the market predictions for the next two years formed by this analysis framework.

1. Cycle

Bitcoin has ended the traditional four-year cycle and entered the early stage of a bear market. Recently, the explosive growth of many old altcoins has confirmed this. Every time a Bitcoin bull market ends, old altcoins experience a wave of super surges. However, this bear market cycle may be significantly shortened due to the arrival of the AI bubble in the U.S. stock market.

Gold is in a major cycle of transition between old and new monetary systems. As long as this transition cycle has not ended, gold will continue to rise. Therefore, after this round of correction, gold can be held long-term for 10 years.

The cycle of the U.S. stock market is essentially the U.S. debt cycle. According to the views of several experts in the economic field, the U.S. debt cycle is in its later stages but has not yet ended, as several overheating indicators have not yet appeared, although some signs of overheating are already present.

Will this AI revolution definitely create a bubble? It is almost certain, because every major technological change leads participants to fear missing out, resulting in excessive capital expenditure and even large-scale borrowing to start telling stories.

The above forms a very bullish foundation for the next two years.

2. Liquidity (Expectation)

In terms of liquidity, we only look at the liquidity situation in the U.S. Recently, due to the government shutdown and ongoing balance sheet reduction, the liquidity situation in the U.S. has been very tight, with the SOFR-RRP spread reaching levels seen during the COVID period. This may also be part of the reason for the recent declines in the U.S. stock market and Bitcoin. Therefore, I am not optimistic about the recent U.S. stock market and Bitcoin.

However, the recent U.S. government shutdown is about to end, which will improve the recent liquidity tightness. Under this expectation, the market has made a quick rebound. But this is just an improvement and does not constitute the conditions for a continued bull market.

Starting in December, the Federal Reserve will stop reducing its balance sheet and is very likely to begin expanding it again. At that time, the liquidity environment for the U.S. stock market and Bitcoin will continue to improve significantly. But this is just a return to normal liquidity, similar to October 2019. The real large-scale monetary easing may not happen until May next year after Trump takes control of the Federal Reserve, similar to March 2020.

The above forms the basis for a recent view of market fluctuations, a mid-term view of slight upward movement, and a long-term view of significant increases.

3. Technical Analysis

Bitcoin:

As shown in the chart, Bitcoin is in a large-scale fourth wave adjustment (the mainstream view is that this first wave should be counted from the time Bitcoin appeared, but I take the low point of March 12, 2020, as the starting point of the first wave, as this will not affect the subsequent analysis, so it has not been changed). Generally, the fourth wave will be a horizontal adjustment, especially when the second wave is a steep adjustment. This is the reason for Bitcoin's expected horizontal adjustment in the coming months. Combined with the analysis of cycles and liquidity, it does not support a deep decline in Bitcoin.

The judgment of the low point of this Bitcoin bear market cycle and the high point of the next bull market cycle can be found in my Weibo post on November 3.

Gold:

As shown in the chart, gold is in a correction phase of a 10-year bull market. Such a level of correction is difficult to complete within two to three weeks. However, since gold is in a major cycle of transition between old and new monetary systems, supported by continuous purchases from emerging market central banks, the extent of this correction cycle for gold will not be too large.

Therefore, the 0.382 retracement level at 3100 can be considered as a target in extreme cases. A more likely scenario is to find the end of the correction between 3350-3750. If you are afraid of missing the next 10-year rise in gold, you can buy directly below 3750.

U.S. Stocks:

The uncertainty of the U.S. stock market's correction is the greatest, but in the context of an upward cycle that is far from over, any correction presents a buying opportunity.

The AI bubble will definitely come, but will it definitely burst? This may be the fate at the beginning of every technological change. Companies that borrow heavily and engage in high-leverage mergers and acquisitions out of fear of missing opportunities may find that capital returns are very low in the early stages of technological change when the market is not yet mature. Once this becomes apparent, the story may begin to show cracks. At this point, if the Federal Reserve tightens monetary policy due to excessive liquidity leading to rising inflation, the bubble will burst.

Several observation indicators can serve as the basis for escaping the peak during the future bubble period: 1. The emergence of sky-high mergers and acquisitions. 2. Rising inflation, with a significant expectation of the Federal Reserve tightening monetary policy. 3. Any AI-related stocks experiencing explosive growth with extremely exaggerated valuations.

Of course, it is not the case that one should sell immediately when these events occur, but rather to start being vigilant, enjoying the bubble while also preparing a profit-taking plan.

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