And how about this, tying the two themes that have spooked the markets together in a surprising development:

Oil prices rose more than 3 percent on Tuesday as data showed Chinese oil demand likely hit a record high in 2015, but contracts remained near 12-year lows as the IEA said the market should stay oversupplied this year.

Oil rises on record Chinese demand, oversupply caps gains | Reuters

Maybe, just maybe, the world isn't about to implode..

When bad news turns into good news, we could have reached the point where markets start to stabilize, at least for some time:

Shares in Europe and Asia rose on Tuesday and the dollar gained after data showing China's economy grew last year at its slowest pace in a quarter of a century led investors to anticipate more efforts by Beijing to spur growth.

Global stocks rise as slowing China growth boosts stimulus prospects | Reuters

However, we have to say that we don't really believe in any more stimulus for China, especially monetary stimulus, as this:

• Accelerates the capital outflow, leading to more pressure on the yuan, exactly the biggest issue making markets nervous
• The exhaustion of the debt funded growth model.

What China needs to do is cut some dead wood in the old smokestack heavy industry that is largely state owned. It suffers from large overcapacity and large debts, and this is holding back a smooth transition from an economy led by investment, export and construction, to one led by consumer spending, services, high tech and innovation.

They say they're going to do it, but there are limits to what they can do as it means making many people redundant, tearing up the social contract.

China's top state-owned asset administrator has vowed to clean-up the country's so-called "zombie" industrial companies by 2020, the official Xinhua News Agency has reported. Zhang Yi, Chairman of the State-owned Assets Supervision and Administration Commission (SASAC), told a central and local enterprise work conference convened at the weekend that the agency will "basically" resolve the problem of unproductive "zombie" firms over the next three years.

China to clean-up 'zombie' companies by 2020: Xinhua - Yahoo Finance

Well, there is a reason why we've only bought a fraction and are mostly in cash here still. The market is treacherous and really seems to want to go down and there always seems to be a 'reason' at hand, at present another leg down for oil. The modus operandi in the market seems to be to sell the rallies. We could have joined, as we even had some profits on a couple of positions this morning (ELLI and one of the shorted VIX futures), but since we are overwhelmingly in cash on a $1M virtual portfolio, we chose not to.

So we're down because:

1. We're drowning in oil
2. China slowdown producing capital outflow and looming devaluation sending a wave of deflation through the world economy
3. Earnings recession
4. Overvaluation
5. Retreat of petro dollars
6. Fed rate hike path too aggressive
7. World drowning in debt

Did we miss something?

The question is, which of these is serious enough for stocks to tumble another leg down?

This actually makes sense

Financial markets are undergoing two consequential transitions, which not only amplify the impact of even the smallest developments in China and oil, but also increase risk aversion overall and create the conditions for more unpredictable developments. The first has to do with the shift from a prolonged regime of repressed financial volatility to an environment in which such instability is higher and less predictable. The primary reason is that central banks are less willing (in the case of the Federal Reserve) or less able (in the case of the European Central Bank and the People’s Bank of China) to act as suppressors of volatility. In the short term, this transition inevitably leads to higher risk aversion, deleveraging and lower portfolio risk-taking, especially affecting risk-based models and asset allocations that use volatility as a major input. The second transition involves liquidity, and a move away from counter-cyclical balance sheets. Facing tighter regulation and sharply reduced market appetite for short-term earnings deviations, broker-dealers are a lot less willing to take on inventory when the market overshoots. Other pools of capital, including sovereign wealth funds, also face constraints in increasing their risk-taking.

The Deeper Causes of the Global Stocks Rout - Bloomberg View

The risk is a spill-over from this financial instability to economic instability, but perhaps things calm down before that happens:

Left unchecked, these two transitions would feed each other, accentuating the general sense of financial instability and insecurity. The longer this continues, the greater the volatility and the bigger the threat of adverse consequences for economic and corporate fundamentals; and the higher the risk that the instability could then spill back onto financial markets, fueling a destabilizing vicious cycle of economic and financial dislocations. The good news is that such dynamics ultimately exhaust themselves. Unfortunately, that only happens after a lot of volatility, accompanied by a heightened risk of very sharp and disorderly declines in financial asset prices as well as contagion. In the process, that turmoil has a contractionary influence on corporate and household spending, slowing economic growth.

The Deeper Causes of the Global Stocks Rout - Bloomberg View

sell short 2 VIX July $23.90

Unless we recover late in the day that 1830 support seems to be gone, which is why we went in only with few. The VIX itself is at 31, high, but not yet in panic territory so we wait for that to short some more futures.

Well, it seems that 1830 on the S&P is holding and we might actually rally from here, at least for a bit. We might even end up green today already..

Pity we didn't short more of these VIX futures, but market mayham can be self-reinforcing, even if we think the selloff is overdone by now.