How Intermarket Signals Could Help to Avoid Major CrashesThree Crashes, One Pattern
I've been testing whether intermarket analysis can help avoid major drawdowns when selling weekly puts. Here's what the data shows across three very different market crashes:
COVID Crash (Feb-Mar 2020)
Drop: -914.75 points (-22.87%)
Duration: 29 bars, 41 days
Signal: BEAR fired in mid-February, BEFORE the crash
The macro composite dropped sharply as bonds rallied (flight to safety), credit weakened, and VIX exploded. The signal went red weeks before the worst of the selling.
2022 Bear Market (Jan-Jul 2022)
Drop: -837.25 points (-15.25%)
Duration: 137 bars, 199 days
Signal: BEAR fired in early January, stayed red through most of the decline
This was a slow grind lower as the Fed tightened. The indicator stayed in BEAR mode for most of the year, keeping me flat during the worst of it. Notice how the red background covers almost the entire decline.
April 2025 Tariff Crash
Drop: -770.25 points (-13.35%)
Duration: 6 bars, 10 days
Signal: BEAR fired in late March, BEFORE the drop
The fastest of the three crashes - just 10 days. But the macro signals still deteriorated first. Credit (JNK) weakened, volatility spiked, and the composite crossed below its signal line before price collapsed.
The Pattern
Three different causes (pandemic, Fed tightening, tariffs). Three different timeframes (41 days, 199 days, 10 days). But in each case, the macro signals deteriorated BEFORE equities fell hard.
The Core Idea
Markets don't move in isolation. Before major equity drawdowns, stress often appears first in:
TLT (Bonds) - Flight to safety begins
JNK (Credit) - High-yield weakens as credit risk gets priced
DXY (Dollar) - Strengthens as risk-off flows accelerate
VIX (Volatility) - Fear builds in the options market
The indicator normalizes each market using z-scores (standard deviations from 1-year average), then combines them:
Macro Score = (TLT + JNK) - (DXY + VIX)
When this composite trends down and crosses its signal line, conditions favor caution. When it trends up and crosses above, conditions favor risk.
Why This Matters for Put Sellers
Selling weekly puts has attractive math: 90%+ win rate, consistent premium. But the losses when they come are brutal (600% stop loss). One bad week can erase months of gains.
The question isn't IF a crash will happen. It's whether you're holding short puts when it does.
My 5-year backtest on ES 7DTE puts - using TastyTrades backtester:
Without Macro Filter:
357 trades | 96.1% win rate
Total P/L: +$63,492
Max Drawdown: 10.30%
Profit Factor: 2.90
With Macro Filter:
200 trades | 96.0% win rate
Total P/L: +$33,636
Max Drawdown: 2.91%
Profit Factor: 3.51
Key finding: 72% reduction in maximum drawdown.
Yes, fewer trades means less total profit. But avoiding the tail risk changes everything about position sizing and sleep quality.
Current Status: A Challenging Environment
Right now (January 2026), we're in a consolidation range. The macro score is hovering near flat, and with the 7-day EMA setting, signals are flipping almost weekly.
This is exactly the environment where the indicator struggles:
Range-bound price action
No clear macro trend
Frequent signal changes (whipsaws)
Difficult to follow systematically
I'm being transparent about this because it's real. The indicator seems to work well for catching major regime shifts but generates noise during consolidation phases.
Work in Progress
This is not a finished system. It's a research framework I'm actively developing. Areas I'm exploring:
Signal method variations - The indicator offers 7 different methods (EMA Cross, Slope, Momentum, Multi-Confirm, etc.). Some may handle consolidation better.
Longer smoothing periods - The current 7-day EMA is responsive but whipsaw-prone. Testing longer periods for range markets.
Regime detection - Adding logic to identify trending vs ranging environments and adjust sensitivity.
Combining with price filters - Using EMA20 or other price-based filters as secondary confirmation.
The goal is to reduce false signals during consolidation while maintaining the ability to catch major turns.
What It Catches vs. What It Doesn't
Works well for:
Major regime shifts with clear macro deterioration
Gradual credit/bond stress building over days or weeks
Events like COVID, 2022 bear market, April 2025 tariff crash
Struggles with:
Range-bound, choppy markets (like now)
Overnight gaps from surprise news
Idiosyncratic moves unrelated to macro
Short-term whipsaws in flat macro environments
How I'm Using It (Current Approach)
1. Check the indicator before opening new put positions
2. Clear RISK-ON (green, rising): Full position size
3. Clear RISK-OFF (red, falling): No new positions or reduce exposition
The "flat/choppy" category is new - I'm adding nuance rather than treating it as binary. When macro is unclear, I'd rather miss premium than get caught in a whipsaw.
The Honest Tradeoff
What you give up:
Fewer trades = less total premium
False signals in consolidation
Missed rallies when flat
Requires discipline to follow
What you gain:
Avoided COVID crash: -22.87%
Avoided 2022 bear: -15.25%
Avoided April 2025: -13.35%
Significantly better risk-adjusted returns
Ability to size up when conditions are clearly favorable
For me, avoiding those three crashes was worth the whipsaws in between. Your risk tolerance may differ.
Try It Yourself
I've published the indicator with multiple signal methods so you can test what works for your approach:
EMA Cross (what I use) - Classic crossover
Slope - Simple trend direction
Momentum - Rate of change threshold
Multi-Confirm - Requires 4+ methods to agree (more conservative)
Indicator in related ideas below.
What's Next
I'll continue refining this approach and will share updates as I find improvements. Specific things I'm testing:
Longer EMA periods for the signal line
Adding a "flat zone" where macro is inconclusive
Combining macro with price structure (above/below key MAs)
Different parameter sets for trending vs ranging markets
If you have ideas or are working on something similar, drop a comment. This is open research, not a black box.
Final Thought
Three crashes. Three different causes. Three times the macro signals warned before price collapsed.
Is it perfect? No - the current consolidation proves that. But when the big moves come, they tend to show up in credit, bonds, and volatility first.
I'd rather deal with some whipsaws during flat markets than be holding short puts when the next -15% hits.
---
What macro signals do you watch? How do you handle range-bound environments? Let me know in the comments.
