Stock Market Outlook October 2026: SPY, VIX & Positioning
The past few weeks have given markets plenty of reasons to sell off, yet the S&P 500, as tracked by SPY, is still trading just 2% below its all-time high. Beneath that resilience, however, we’ve seen some significant changes in market positioning, particularly around Friday’s options expiration (OPEX).
Between the volatility spike, aggressive hedge fund deleveraging, systematic selling pressure and the return of corporate buybacks, the market is entering an interesting period. Earnings will now have to determine whether this positioning reset provides the foundation for another move higher or whether we have more downside to work through.
VIX Options Expiration: A Negative Gamma Feedback Loop
One particularly interesting development during Friday’s OPEX was the outsized move in the VIX relative to the SPX.
Much of this appears to have been driven by market maker positioning and a negative gamma feedback loop. As the VIX moved higher, the delta of call positions that had been building since last month increased, forcing market makers who were short those calls to buy additional VIX futures to hedge their exposure. That buying created further upward pressure on volatility, amplifying the initial move.
For context, the VIX typically moves around five times as much as the SPX in percentage terms, yet Friday’s ratio reached roughly 20x.
We also saw significant compression across the front end of the VIX term structure, which supports the view that a substantial part of the volatility spike was driven by short-term hedging mechanics rather than a broad deterioration in market fundamentals.
That is potentially constructive for equities, particularly if volatility continues to normalise following OPEX.
Earnings Season: AI Spending and Technology in Focus
As we’ve been discussing, the next two weeks will be particularly important as earnings season picks up.
While only around 14% of S&P 500 companies are scheduled to report this week, we have both META and TSLA reporting on Wednesday, October 21.
The focus will likely be on META, particularly what management has to say about AI capital expenditure, demand and monetisation. With investors increasingly questioning the returns on AI infrastructure spending, management commentary could have implications well beyond META itself.
TSLA will also be interesting, particularly given the growing speculation around a potential merger with SpaceX.
Speaking of SpaceX, the company has confirmed its earnings for today after the market close, which is rather unusual given the relatively short notice.
Whether the timing is an attempt to stabilise sentiment around the AI trade is anyone’s guess, but it certainly makes the report one to watch.
Below is what the options market is currently pricing for the earnings moves compared with the historical median moves over the past eight quarters. For SPCX, we’re using the August 4 report, as that is the only post-IPO earnings reaction available.
CTA Positioning: Limited Support at Current Levels
Turning to positioning, there isn’t much support coming from commodity trading advisors (CTAs) at current market levels.
Systematic flows are likely to remain skewed towards selling, with the next meaningful positioning threshold sitting roughly 3% below the market, around SPY $740.
In other words, we shouldn’t expect CTAs to provide much of a cushion if equities experience further weakness in the near term.
The positive here is that corporate buybacks are starting to pick up again. We’re looking at a potentially record year for buybacks, and with companies gradually exiting their blackout periods, these flows should become an increasingly important source of demand as we move into November.
That creates an interesting dynamic: systematic strategies could continue selling into weakness, while corporate demand gradually returns to absorb some of that supply.
Hedge Fund Deleveraging: The Largest Reset Since April 2025
Another development worth highlighting is the massive deleveraging we saw across hedge funds last week.
Whether someone got caught on the wrong side of the trade and triggered broader risk reductions is difficult to establish, and I won’t speculate on who, but the dynamics resemble some of the forced unwinds we’ve seen previously, further amplified by market maker hedging.
Hedge fund net leverage has fallen to 43.7%, marking the largest weekly decline since Liberation Day in April 2025 and the fourth-largest weekly decline over the past five years.
This matters because while forced deleveraging puts pressure on equities in the short term, it also creates room for positioning to rebuild.
High-beta stocks in particular could reverse quite quickly if earnings come in better than expected and hedge funds start putting risk back on.
That doesn’t necessarily mean the selling is over, but positioning is becoming considerably less crowded, which improves the potential setup for a recovery.
Treasury Yields: How Much Higher Before Equities Come Under Pressure?
I also wanted to highlight an interesting finding from Bank of America’s latest Fund Manager Survey.
Investors indicated that a 10-year Treasury yield of roughly 5.9%–6.0% would be enough to trigger a more meaningful rotation out of equities and into bonds.
Given where yields are currently trading, that suggests there is still some room before investors begin shifting from sector rotation towards broader equity risk reduction.
Of course, the level itself isn’t a hard trigger, but it gives us a useful indication of where institutional investors believe bonds could become sufficiently attractive relative to equities.
Wednesday’s $13 Billion 20-Year Treasury Auction
Beyond earnings, I’ll be keeping a close eye on Wednesday’s $13 billion 20-year Treasury auction.
This will be an important test of demand given the ongoing concerns around fiscal deficits and the amount of debt the US Treasury needs to finance.
The 20-year yield is currently trading around 5.5%, even slightly above the 30-year, suggesting investors are demanding a premium to hold this particular part of the curve.
The positive here is that duration has recovered from the early October selloff, bond volatility has started to ease and trading conditions have become more orderly.
That makes the auction environment considerably more favourable than it was a couple of weeks ago, although the structural concerns haven’t gone anywhere.
What I’ll be watching is whether the auction attracts solid demand without a meaningful tail. A weak result could quickly put pressure back on long-end yields and, by extension, equities.
Oil Markets: Geopolitical Risk Is Becoming More Persistent
With reports of another potential escalation in the Middle East, I also wanted to comment on developments in the oil market.
Traders are increasingly treating disruption around the Strait of Hormuz as a more persistent problem rather than a temporary geopolitical shock.
Brent futures for December 2027 are still trading close to $90 per barrel, suggesting that a substantial geopolitical risk premium remains priced into the market well beyond the immediate conflict.
What makes this particularly interesting is that equities have remained relatively resilient despite the persistent risk premium in energy markets.
It’s a development worth monitoring, particularly given the potential implications for inflation expectations, Treasury yields and ultimately the Fed’s policy outlook.
SPY Technical Outlook: $760 Support, $770 Resistance
Coming back to SPY, now that OPEX has passed, the index has stabilised around the $760–765 area, with Friday’s session testing the lower end of that range, broadly in line with what we expected.
The question now is whether improving earnings and the return of corporate buyback flows will be enough to offset the remaining systematic selling pressure.
With positioning having been reduced so aggressively, the setup for a recovery is certainly there, but we still need earnings to deliver.
For now, trading is likely to remain choppy. The options market is pricing in a move of roughly 13 points, which puts the lower end of the expected range around $750–755.
The volatility regime remains negative below $775, meaning moves in either direction are likely to be sharper as market maker hedging can amplify price action.
The immediate levels I’m watching are:
$775: Key volatility regime threshold.
$770: Immediate resistance.
$760: Nearest support.
$750–755: Lower expected-move area.
$740: Next meaningful CTA positioning threshold.
Volume positioning remains broadly neutral for now.
QQQ Outlook: Put Positioning Remains Elevated
In terms of volume, QQQ is starting to catch a bid, although options positioning remains heavily skewed towards puts.
The nearest support sits around $710, where market maker hedging could provide some buying support.
Worth noting that the options market is pricing in a move of roughly 13–14 points, which could bring us closer to the $700 level on the downside.
I expect $700 to be a considerably stronger support area, particularly given the concentration of positioning around that level.
SOXX Outlook: Watching $480 and $470
SOXX continues to chop around the $500 level, although we’re starting to see volumes pick up around $480 and $470.
This suggests we could see another leg lower towards those levels before the market finds more meaningful support and resumes higher.
For now, I’d be watching how the index reacts around those concentrations of volume rather than assuming the consolidation around $500 has already run its course.
A Constructive Setup, but Earnings Need to Deliver
The broader picture remains interesting. Equities are holding up remarkably well despite a significant reduction in hedge fund exposure, continued systematic selling pressure and elevated geopolitical risks.
At the same time, corporate buybacks are returning, bond market conditions are improving and hedge fund positioning has become much less crowded.
These developments create room for equities to recover, particularly in higher-beta areas of the market, but the next leg higher will need fundamental support.
Earnings will be the key test. If corporate results and guidance continue to support the growth outlook, the recent positioning reset could provide an opportunity for investors to rebuild exposure rather quickly.
Until then, I’m maintaining a constructive medium-term outlook while remaining mindful that the negative volatility regime can still produce sharp moves in the near term.