New Regimes All the Way Around

If you accept the timeless Wall Street axiom that, "Markets hate uncertainty," then there can be little doubt an upcoming general election without the incumbent on the ballot will spark uncertainty, especially with President Biden dropping out of the race this late in the process. In addition, we have rising conflicts in the Middle East, alongside the global IT outage aftermath from Friday, 

Furthermore, a packed midsummer stretch is upon us, with prime-time earnings season, key macro data points like GDP and PCE, and the FOMC at the very end of the month all coming up in the next few weeks. 

Thus, despite this morning's opening bounce, the pertinent issue is whether we are in the midst of a regime change in markets, too, with the Nasdaq topping out while volatility bottoms out seasonally. 

On the QQQ ETF 30-minute chart, below, for example, the opening gap up this morning merely alleviated some near-term oversold conditions. Bulls are betting on a continuation of the old regime where we simply melt up to new highs and squeeze without a breather as volatility rolls over to new lows. 

But there is ample evidence to support both the notion that volatility tends to bottom in July for at least a few months into October, and that a Presidential election without the incumbent running is bad for stocks the next few months, too.

This is all happening as the earnings bars are exceptionally high for the heaviest-weighted market leaders in history.

Taking all of this points as specks on the proverbial mosaic, the odds favor further downside into October with volatility pushing higher.