U-G-L-Y

Well, that was ugly yesterday, and as the schoolyard rhyme goes, the SPX ain't got no alibi for another poor day.   OK, that's not totally true- the perhaps inevitable rumours of hedge fund blow ups and forced liquidations have already emerged- but even there, it was already a bad day before it turned ugly on the supposed liquidation selling.

Regardless of how the SPX got there, yesterday's 2.5% swan dive has taken it bang to the long term head and shoulders neckline identified a few days ago.

Perhaps ominously, the Russell 2000 broke through the equivalent level last week, and has shown little inclination of doing anything but the textbook acceleration through the key level.

At the risk of stating the bleedin' obvious, if the SPX level gives way and confirms the message from the Russell, you'd have to say that the intermediate frame outlook is quite poor, the historical performance of JBTFD notwithstanding.

What's also somewhat concerning is the apparent lack of panic.   Oh sure, the usual bearish "prophets" have been trotted out, and Macro Man can only imagine what the talking heads on CNBC must be saying (he refuses to watch.)  But you might have thought that the worst start to the year in recorded equity market history would be worth a bit more in vol terms than VIX at 25.

Moreover, if we look at skew, it is nowhere near the panic highs of August.   OK, in fairness, we haven't had that bum-clenching day where everything collapsed as it did then, but still....the discrepancy is notable.  (The chart below shows the implied vol difference in 3 month 25 delta SPX calls and puts.)

One thing that is not particularly concerning is the performance of FANG.   That is to say, of course it is if you are long and watching the stocks go down.    But given the degree of outperformance last year, it must be taken as something of a triumph that those 4 stocks have moved sideways against the SPX during the current period of market angst, much as they did in August-October.   If the high-fliers start systematically under-performing, that will be a pretty good signal that the proper flush has well and truly begun.

In the meantime, just remember that times of stress are when you need to play to your strengths;   Macro Man has met very few people for whom "panic" is a state of relative advantage.  Like more than a few folks, it seems, he put on some small pro-risk trades yesterday before the flush.  Needless to say, the immediate performance was less than impressive.  But his analytical advantage has always been measured in weeks and months rather than minutes and days, and in his current seat he has the luxury of playing in that time frame unfettered by the need to make money every day (or, to put it more accurately, to "not lose money" every day.)  Volatility begets opportunity, whether you're a day trader or a proper macro-time frame punter.  The key is to utilize it in a way that doesn't make you look and feel ugly.