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Holy cow! Last week, I told you to “buckle up” and showed you why our long-volatility trade was likely to persist. You can click here to read that note if you missed it or want a refresher. In short, I pointed to outsized positive returns in the U.S. energy sector, plus sharply negative returns from Russian stocks, as the culprits for the massive divergences that caused our model to flip into its “Trouble Ahead,” risk-off mode on the close of January 26.

You might have heard of the Lindy effect. This is a well-supported theory that essentially says: The longer something has already persisted … the longer it is likely to continue. Its name comes from Lindy’s deli in New York City, a popular hangout for stand-up comedians. The original idea was this: The longer a new stand-up comedian gets invited back for another performance, the longer he or she could expect to continue taking the stage. It makes sense.

Our model has recommended our risk-off position since the market open on January 27. However, the market has rallied since, and the Volatility Index (VIX) is sinking. I wrote two weeks ago about why the long-volatility trade is a difficult one to make: It rarely pays off, so it’s hard to pull the trigger each time our model switches into risk-off mode, though the occasional winners can be many multiples larger than the typical losing trade. That low win rate is one reason the long-volatility trade is uncomfortable.

Stocks just put in their worst January performance since the 2008 Great Financial Crisis (GFC). In fact, outside of October and December of 2018, the Nasdaq 100 hasn’t fallen as much as it did in January during any month since the throes of 2008 GFC. The Nasdaq 100 lost 8.8% last month. But that figure somewhat obscures the extent of the volatility we saw: High to low, the Nasdaq’s range, at 2,789 points, was the largest we’ve seen in the index’s history, including the 2000 tech wreck.