Elections Proving to be Powerful Force on Markets

November 2, 2016 4:28AM CDT

We are less than a week from the US elections, and volatility has been creeping higher. I believe that after the elections volatility, we will be at the forefront and will continue into the next year. This is meaningful because Volatility may convince traders, and the markets as a whole, that they are about to see risk evaporate. Thus, it will push and offset risk positions, moving money to safe havens. We could be on the cusp of major abrogation from this multi-year FED induced uptrend. Equities have made new highs, but ultimately have been in a sideways channel for just about two years, which may have created a top. This sideways channel has mitigated volatility to a range, and vacuumed volume out of the VIX. This has created a false positive in market certainty and could be quickly eliminated by quick liquidation. Some of the major concerns that are reflected by higher volatility are US Elections, Economic slowdown, and Central bank effectiveness levels. In my view, a risk off signal would be VIX futures trending over the 18 handle. At this point, I would imagine we see some real offsetting, hedging, or put buying on equities. It seems like this scenario is playing out now, and will be very interesting to see how this evolves in the days and hours before the election.

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