We’ve all heard about black swans... the concept is thrown around everytime the S&P 500 moves more than a percent. Is “cheap AI” a black swan? Maybe. In case you missed it, DeepSeek, a Chinese artificial intelligence company, went live surpassing ChatGPT in users & rivaling their performance at a fraction of the cost. Fears surrounding American tech plans to invest nearly $1 trillion in AI, when DeepSeek did it with an estimated $6 million, have propelled the NASDAQ 100 down nearly 3%.
To digress for a moment, logically, their material is open source, meaning accessible to anyone. American AI companies, or even AI itself can access, and copy their formula. What does this mean? Their technology will be replicated and inevitably help companies everywhere, not just in China. So, if not a black swan, what are these market moving events? Why do some events over others have the capability to move the NASDAQ down ~3%? Is the latest move a bearish signal, or an opportunity?
For simplicity, we will call these grey geese, as they don’t quite qualify for the sophistication of a black swan. Grey geese are catalysts, not causers, of big market moves. They are the matches, and fear-infused markets are the gas tank. So, we have our match, where’s our gas tank? Let’s look at the VIX, or the “fear index”. Think of this chart as the price of insurance: when the price goes up, insurance costs more because the perceived likelihood of something bad happening has also increased, and vice versa. Hence, “the fear index”, the more fear the market has, the higher the perceived probability of doom.
What do we see? A tank filling with gas. These past two weeks we have seen a steady decline in fear, complimented by a ~4.4% return in SPX (S&P 500 Index). Too steady. It is important to understand the abnormality of this. Volatility is mean reverting, not a moving average. Between zero DTE options, leveraged ETF’s and growing correlation to crypto markets, biting off more than you can chew has never been easier. Plain and simple: steady declines in the VIX indicate steady increases in investor confidence. Moves like this lead to overconfident investing, with no respect for risk. After approaching highly overconfident levels, it takes very little to surprise, and panic markets. And there you have it, the gas, the match, and now, the ignition.
To answer your question, this is an opportunity. However, the opportunity was last week. Taking the momentum gains generated from investor overconfidence and hedging against the mean reversion panic that follows. This is how Altus achieves its dual-mandate: capital appreciation and downside protection identifying repeatable investor behavior that exceeds regimes, respects risk, and pursues better, risk-adjusted returns.
