This week’s episode examines a series of shifting conditions across my proprietary market models, volatility complex, currency, and credit markets that point to growing market vulnerability. I break down the developments and explain why the risk environment has changed.
- Proprietary Models: Both models have been flashing warning signs for weeks, and Friday sent the EWS model to its highest, most cautionary level since the early days of the Iran conflict.
- VIX Futures: The front of the futures curve is flattening as spot VIX tightens its gap to the July contract and the July-August spread compresses.
- Chronic Undervixing: Realized volatility continues to climb while implied volatility lags, squeezing the variance risk premium as individual stock volatilities rise.
- Positioning Dynamics: Speculators are heavily long the Dow and strongly bought the S&P dip, alongside crowded long positions in the US Dollar and short positions in major cross currencies.
- Credit Market Stress: High-yield and investment-grade spreads are beginning to widen from very tight levels as capital rotates toward Treasuries and equities start to follow high yield bonds lower.
Watch the full analysis to see how these factors are stacking up.
Here we go!
