Stocks Analysis by Adam Turquist covering: S&P 500, CBOE Volatility Index. Read Adam Turquist's latest article on Investing.com
Halloween is not the only thing spooking investors right now. Today’s highly anticipated employment report, a busy week of earnings that includes a handful of the Magnificent Seven names, rising yields as we discussed last week, and of course, next week’s U.S. election are all contributing to building angst in the market — not to mention a Federal Open Market Committee meeting that wraps up on Thursday., more commonly known as the VIX or “fear-gauge.
However, we may need to wait until after Election Day for volatility to normalize as the VIX futures curve points to potential elevated near-term turbulence for stocks. The middle panel of the chart below depicts the spread between the spot VIX and the six-month VIX futures contract. What does this mean for stocks? As highlighted in the bottom panel, the current VIX reading equates to a potential S&P 500 range of 5,386 to 6,111 over the next 30 days. Coincidentally, the lower end of the indicated range lines up with a key support area for the broader market, marked respectively by the 200-day moving average and September lows.If volatility does pick up and stocks decline, seasonal trends suggest investors should buy the dip.
Technically, equity market momentum has stalled as the broader market approaches resistance from the upper end of its longer-term rising price channel, a logical spot for a pullback or pause in this rally. The good news is that selling pressure in stocks could provide a tactical opportunity to buy the dip as the longer-term bull market remains alive and well, supported by solid fundamentals and a surprisingly resilient economy.
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