Late October tactical backdrop suggests bottoming process. While there are many real macro themes and geopolitical risks that could help explain the October correction, we believe it came from excessive optimism, historically low volatility, and an extreme overbought condition. Just as these helped create an environment ripe for volatility in mid-September, the 10% drop in the S&P 500 (SPX) into the 10/29 low created the opposite environment. The question is whether the market became oversold enough to generate the next leg higher as we exit 2018. We think it did using three intermediate-term oversold indicators:

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