Proflex Market Update - Wk 13

Trump Trade Unraveling | Five-Week Liquidation | VIX Friday Spikes | Oil vs Futures

We are now five consecutive weeks into a downtrend — beginning slowly, then accelerating sharply over the last fortnight. The S&P 500 is down 8–9% from its highs. Nasdaq has dropped 12%.

This is a clear liquidation event, where everything sells because nothing matters except getting out. IWM, NDX, SPX: all moving together, all moving down.
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The market believed Trump when he said he doesn't do wars. Then he got stuck into one.
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As the conflict stretched past the two-to-three-week resolution every analyst predicted, that overconfidence has turned into full-blown liquidation mode.

The mechanism is mathematical. Volatility (VIX) is trading at 30–32, which means the market is pricing in roughly 2% average daily moves.

At that rate, the S&P 500 would be zero in 50 trading days. Every participant knows that's impossible. Which means the panic is the signal & not the fundamentals.

Here's the read that matters: it feels worst at the bottom. And it feels pretty bad right now.

Insights from Proflex Macro Call

This week's call centred on a single, powerful observation: this correction was always going to happen. As we've called it on every call since Wk 10, the "Trump Taco Trade" was a crowded bet. Now it's being forcibly unwound.

A key data point most investors are missing: software companies are now trading at 2008 financial-crisis valuation multiples, not because their earnings have collapsed, but because leveraged sellers don't discriminate.

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These are companies generating strong AI-driven growth, priced at the same multiples as the post-Lehman depression. The earnings power is intact. The valuation is not.

The call also highlighted the VIX Friday spike pattern — a war-time anomaly that has never appeared in prior cycles. In normal markets, VIX falls on Fridays because options expiry creates downward pressure.
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Now it spikes every Friday as the market prices a 60-hour unknown between close and Monday open. Critically: every Monday for the last two weeks, VIX has crashed as the weekend passed without escalation.
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​You can watch the complete recording here:​
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Key Drivers This Week

The Trump Taco Trade: How Overconfidence Became a Five-Week Rout

In Week 10, we asked the binary question: does the Strait reopen, or does the conflict deepen?
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In Week 11, we warned that once the March 20 options expiry scaffolding came down, there would be no structural floor protecting the market.
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​Both have now played out.

The market had built a narrative: Trump gets involved, Trump moves fast, war resolves in weeks. That was the "Trump Taco Trade" and it held as long as market makers were defending 6,700 SPX with hedging flows.

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Once that hedging unrolled after March 20, the trapdoor opened. 6,700 broke. It confirmed. The path to 6,500–6,300 opened exactly as described by Proflex.

Now the people who bought the dip expecting a V-shape are realising they were early.
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​The forced liquidation of leveraged retail and momentum funds is what drives the final, steepest leg of any correction. That flush is happening now.

Five Weeks of Liquidation: Derivatives Driving the Drop

In Week 11, we explained that $5 trillion in options were acting as "scaffolding" keeping selling orderly. It did and the last two weeks have been the result.

What the market is experiencing now is textbook CTA and momentum liquidation. Institutional selling data from the last two weeks shows one of the worst readings on record. ​
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When volatility spikes above certain thresholds, algorithmic momentum strategies are forced sellers regardless of fundamentals. It's mechanical, not analytical — every sector, every index, selling together.

The Nasdaq earlier was holding better than the S&P and refusing to make new lows, has now confirmed a secular downtrend across the board. Weak hands have been in control.

VIX Friday Spikes: The 60-Hour Insurance Premium

Something has changed structurally in volatility that wasn't true before this war: VIX now spikes every Friday.

In normal markets, Fridays were the calmest day of the week.
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Options expiry created downward pressure on VIX. Market makers had contained risk within defined boundaries. That is no longer the case.

Now, every Friday, the market prices a 60-hour unknown — the window between close and Monday open when geopolitical events can play out with no market response available.
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The market buys insurance. VIX spikes. Then Monday arrives, nothing catastrophic happened, and VIX crashes back. We have now seen this pattern twice in consecutive weeks.

The mathematical consequence: VIX at 32 implies a rule-of-16 daily move of ~2%. That is a two-to-three-sigma event if sustained.
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Every day that passes without catastrophe is the market slowly realising the price it paid for insurance was too high.

Oil vs Futures: The Signal the Equity Market Is Missing

In our weekly macro call, we called oil ship traffic the "real-time economic indicator" of this conflict.
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​Five weeks later, it remains the clearest signal available and right now it's telling a more optimistic story than equities suggest.

Brent is near $105 — alarming on the surface. But the futures curve tells a different story: July, September, and December futures are significantly below spot.

Producers are locking in today's prices for future delivery, rational only if they expect normalization.
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Crucially, 4–5 million barrels/day is already rerouted via Saudi Arabia's East-West Pipeline — 20–30% of impacted flow has already found alternate paths. ​
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​Proflex called this an "operational supply shock that needs a resolution to unwind." The futures market is now quietly pricing in exactly that resolution.

🔍 What We're Watching

• Strait of Hormuz ship traffic — the real-time scorecard flagged in Wk 09. Any uptick above 5–6 transits/day signals a resolution narrative forming.

• Oil futures curve — backwardation holding = producers expect normalization. Curve flipping into contango = market pricing a prolonged crisis.

• Monday VIX compression pattern — this has now happened twice. A third consecutive Monday relief open confirms a structural bottom forming.

• Q1 earnings window — three to four weeks away. Until then, no fundamental catalysts. War news and options positioning are the only drivers.

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🧭 Proflex Playbook – Discipline Over Direction
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​The market is caught between a geopolitical crisis it can't model and a structural expiry event it can time to the hour. This is a week for tactical discipline.
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Our conviction stays anchored in the data:

• Focus on Structural Growth: Continue to overweight the secular AI theme, recognizing its multi-year runway.
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• Anticipate Shallow Corrections: Use dips as accumulation opportunities, not reasons for fear, understanding that "none of the corrections stick."
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• Diversify Thoughtfully: Recognize the "decorrelation" across asset classes; consider gold, silver and Bitcoin for portfolio resilience.
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• Develop Mental Models: Prioritize long-term planning (6-12 months out) over short-term news, aiming for consistent, incremental gains.

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If you're an All-Access or Managed Portfolio subscriber, our positioning has already shifted ahead of this moment—scaling up asymmetric hard asset plays while hedging for earnings volatility and geopolitical tail risks.

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Until next week,
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— The Proflex Team
​ Trusted Macro Insights. Calm Investing. Tactical Trades.