Correlations closed the week at .13 2nd percentile.

This is unusually low and vix is not dropping off, giving us a short term warning signal.  The difference this time is that realized volatility is not significantly lower than vix.  We think this finally means a sell-off could be sustained (to be determined how long).  Long volatility is not a good trade due to steep contango (however it is turning up), compared to short index products here.

Our regime switch signal is warning again, vol is high relative to correlation, we believe short-term downside risk outweighs upside.

Thanks and have a great week

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