Immune System

What's Driving It

• [CURRENT STATE] ⬆ Turbulence HIGH -- cross-asset stress well above normal Measures how many different investments are moving in unusual ways at the same time — like a fever thermometer for the whole market
• [CURRENT STATE] ● Credit Spreads ELEVATED -- HY at 82nd percentile, rising from recent lows Measures how nervous lenders are about getting paid back. When the gap between risky and safe bonds widens, it means investors are worried about companies defaulting on their debt
• [CURRENT STATE] ○ Dispersion NORMAL -- names moving in line with the index Tracks whether individual stocks are moving together or going in wildly different directions. High dispersion under a calm surface is a hidden warning sign
• [CURRENT STATE] ○ Software NORMAL -- software stress in line with market Compares how much software/tech stocks are swinging versus the overall market. When this sector is stressed beyond normal, it often spreads
• [CURRENT STATE] ○ Funding NORMAL -- repo/dollar markets stable Tracks the plumbing of the financial system — the short-term lending markets where banks borrow from each other. When this is stressed, the basic machinery of finance is under pressure
• [FORWARD-LOOK] ○ BKLN ABOVE 200-day MA -- leveraged loans stable Tracks risky corporate loans (the kind private equity firms use for buyouts). When this drops below its long-term average, it signals that stress is spreading from stocks into corporate debt — a serious escalation
• [CURRENT STATE] ○ Breadth NEUTRAL -- balanced participation Measures whether the whole market is moving together, or if gains are concentrated in just a few big stocks. Narrow breadth (only a few stocks going up) is a warning that the rally is fragile
• -> Dual-stress regime: turbulence High + credit stress HIGH -- historically MDD -4.42% vs -2.18% when neither stressed
• -> Reduce exposure in weakest positions: FETH (health: RED, PnL: -24.7%), GDDY (health: ORANGE, PnL: -12.2%), UFO (health: YELLOW, PnL: +2.3%)
• Detailed Metrics
• Turbulence: 10.1 (81th percentile) Measures how many different investments are moving in unusual ways at the same time — like a fever thermometer for the whole market
• Magnitude Surprise: 15.1
• Correlation Surprise: 0.67x
• Days Elevated: 2 days
• Divergence Active: NO
• Dispersion Ratio: 1.69 (33th percentile) Tracks whether individual stocks are moving together or going in wildly different directions. High dispersion under a calm surface is a hidden warning sign
• Stealth Stress: NO
• Breadth (RSP/SPY): 1.00 (neutral) Measures whether the whole market is moving together, or if gains are concentrated in just a few big stocks. Narrow breadth (only a few stocks going up) is a warning that the rally is fragile
• BKLN Trend: ABOVE 200-day MA Tracks risky corporate loans (the kind private equity firms use for buyouts). When this drops below its long-term average, it signals that stress is spreading from stocks into corporate debt — a serious escalation
• Sector Stress Ratios:
• AI / Core: 0.42x
• Software / Core: 0.46x Compares how much software/tech stocks are swinging versus the overall market. When this sector is stressed beyond normal, it often spreads
• Consumer Credit / Core: 0.57x
• Credit Context:
• HY OAS: 3.21% (82nd percentile)
• Funding Spread: -8.0 bps (17th percentile) Tracks the plumbing of the financial system — the short-term lending markets where banks borrow from each other. When this is stressed, the basic machinery of finance is under pressure
• Market Reference:
• SPX: 634.09 (BELOW 50-day MA)
• VIX: 31.05

INTERPRETATION

The market is in a highly stressed regime. Turbulence is high but this signal describes current conditions, not forward risk. Historically, high-turbulence periods show the strongest mean-reversion (best 21-day forward returns). However, if credit stress is also elevated, the combination has materially worse outcomes. Check credit stress.

Detailed Metrics