I n last week’s note I compared the similarities between the Volatility (VIX) futures in 2012, 2016 with today highlighting that a drop below support at 26-27 on the March VIX futures would be a bullish signal for the S&P 500. I would encourage investors and traders to continue to monitor the VIX futures particularly as markets transition into the upcoming earnings season and increasingly contentious election. At the risk of stating the obvious, no one knows how markets will react, but as usual, I expect the technical backdrop to be one of the more useful tools to gauge risk reward heading into the election.

First, let’s discuss the backdrop heading into October. The equity market surge through Q2-Q3 pushed most weekly technical indicators, tracking 1-2 quarter swings into overbought territory by mid Q3. A correction into the seasonally weak late Q3 period is underway which we continue to view as a healthy, albeit unpleasant, technical development necessary to unwind the overbought condition.

For reference, a similar technical backdrop was in place heading into Q4 2012 and Q4 2016. Stock markets had rebounded strongly from cycle lows in Q4 2011 and in Q1 2016 and corrections developed from overbought levels that developed in late August into the election each of th...

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