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Ride Out the Short Term for the Next Major Market Surge


The short term could be choppy, but the next major move is likely higher. Here's why.


3. Finally, it appears most traders expect volatility to increase, as the ratio of calls bought (to open) versus puts bought (to open) on the VIX is approaching a margin of three to one during the past 20 trading days. This ratio is at its highest level since July amid heavy volume, as VIX call open interest is around 5.31 million contracts, growing daily, and near the all-time high achieved last month. VIX call buying is another headwind for the market in the immediate term, but also has the potential to unwind in bullish fashion in the future.

The short term could be choppy amid a myriad of uncertainty and major indices trading near key resistance levels. But we expect that the next major move is higher, as underperforming hedge fund managers represent a huge source of buying power in the coming weeks.

(See also: What to Expect in the Fourth Quarter of an Election Year, This Week's Key Events: Earnings Season Begins and PPI Data Hits the Street, and Dissecting the Sectors: Retail and Homebuilding.)

This article by Todd Salamone was originally published on Schaeffer's Investment Research.

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Twitter: @schaeffers
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