In the world of finance, there are certain patterns and trends that can provide valuable insights into future market volatility. One such pattern is the relationship between bank loan funds and market events. According to a recent tweet by Hartnett, when bank-loan funds start to break, it has historically preceded “bad events” such as currency devaluation, COVID-19 pandemic, and even the UK pension crisis.

While this may seem like a vague warning, there are specific levels that can provide a clearer signal of an impending event. For instance, if SRLN (Smallcap Russell 2000) holds $40 and XLF (Financials Select Sector SPDR Fund) holds $52, it could indicate that the market is stable for now. However, if these key levels give way, it may be a sign that an “event” is brewing, leading to a potential flush in risk assets.

The impact of such an event could be significant. The US dollar (DXY) could spike sharply in March, reaching levels near 100, and there could be a heavy bid for duration (ZROZ already up 5.6% YTD). These changes in market conditions would only add to the existing credit stress, further tightening financial conditions.

So what can investors do to prepare for this potential event? Firstly, it’s essential to keep an eye on these key levels and monitor any changes in market conditions. Secondly, diversifying one’s portfolio across different asset classes could help mitigate the impact of any potential volatility. Finally, keeping a close eye on central bank actions and economic indicators can provide valuable insights into the overall health of the economy and the likelihood of an event occurring.