Don't Look Up
"We're All Going to Die!"
If there’s one film that resonates with me right now, it’s Don’t Look Up.
As a comet the size of Mount Everest hurtles towards Earth, nobody seems to care.
Politicians debate optics.
The media chases headlines.
Experts argue over who’s right.
And the public? They split into two camps.
On one side, those that accept the risk and adjust accordingly. On the other, those blindly going about their everyday business, hoping it all blows over.
Sounds familiar, huh?
This is where markets sit right now.
Instead of looking under the hood at what’s actually happening, traders are too busy asking themselves:
Is this the top?
Is this the bottom?
Meanwhile the real question is being ignored.
What if the issue isn’t the next 2% move…but the trend developing underneath it?
Risk Models: Big Red
I’m bored of repeating it, but both my risk models remain deep in the red zone at this moment in time. Here’s why:
Risk Model 1: the VIX is elevated above an upwardly mobile 50dma, as are credit spreads - which recently closed at the highest level this year. Additionally, the percentage of S&P 500 stocks trading above the 50dma has fallen to 43%, down from 65% on the last trading day of February.
Risk Model 2: the VIX is elevated above an upwardly mobile 50dma - as is TLT relative to SPY and XLP relative to XLY. Translation: safe haven assets are bid against the wider index, signaling a shift away from what played out between April through November of last year.
What does this mean?
Looking back at prior instances when we entered the dreaded ‘red zone’ on both risk models, SPX suffered swift and sharp drawdowns, including the notorious 20% drop that played out during the ‘Tariff Tantrum’ in Q1 of last year.
This hasn’t happened yet - and credit where credit is due, bulls deserve huge credit for keeping SPX elevated in such a volatile environment. But this alone isn’t a reason to swing into long positions, not in my opinion anyway.
Markets can ignore the warning lights for a while. They can even rally in the face of them - as was the case during yesterday’s session. But history suggests that when both of these models flash red at the same time, the story rarely ends with a quiet fade to credits.
More often than not, the impact eventually arrives.
Trade the Tape, Ignore the Noise
One of the quickest ways to lose money in markets is trying to be the hero who calls the exact top or bottom.
It’s tempting, of course.
Catch the turn and you look like a genius. But more often than not, traders who obsess over picking extremes end up fighting the tape rather than listening to it.
In environments like this - where signals are mixed and sentiment swings wildly from fear to euphoria - the smarter approach is much simpler: trade what’s actually happening, not what you think should happen.
So what is actually happening right now?
Since February 11 SPY has been making lower highs and lower lows
QQQ is forming a bear flag and hasn’t made a new high this year
SPY suffered a death cross with the 10dma moving below the 21dma
IWM formed a pennant formation and is now below all short term MAs
Bitcoin is struggling to break $70k after suffering a 50% drawdown in 4 months
Oil reached $100 per barrel, likely impacting future rate cuts and inflation
So We’re All Going to Die?
Whilst I appreciate the general tone of this article may seem a little dramatic, that isn’t really the point. Well… maybe a little.
But the broader message is simple.
In an environment like this - where markets are chopping traders to pieces and conviction swings wildly from day to day - bold predictions and grand market calls are mostly a waste of energy.
The traders who survive these periods aren’t the ones trying to nail the exact top or bottom. They’re the ones who stay flexible, respect the signals in front of them, and manage risk accordingly.
Right now the tape is telling a fairly straightforward story: momentum is fading, breadth is thinning and key assets are struggling to reclaim their highs. Oh and the VIX is in an uptrend.
Could that change tomorrow? Absolutely. Markets turn faster than anyone expects.
But until the price action improves, pretending everything is fine simply because we want it to be is a dangerous game.
So for now, the plan is simple.
Respect the tape.
Ignore the noise.
Stay open-minded.
Hope for the best — and prepare for the worst.
Because if the asteroid does hit and you’re holding the bag…boom!
Best,
Alex