Don here...
Most traders think this rally is normal because the S&P is grinding higher.
They're wrong.
The market just moved 250 points in three and a half trading days. The expected move was only 146 points. That's not strength. That's volatility masquerading as a rally.
Here's what everyone missed while celebrating new highs.
Only two stocks are actually driving this market. Nvidia and Google. That's it. Everything else is dragging or dead weight.
Look at the actual numbers from this year:
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Energy sector: Up 4% (most of that came in the last few sessions)
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Financials: Up 10.62% (lagging badly)
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Apple: Up 14% (below the S&P's 17%)
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Amazon: Up 5% (basically nothing)
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Microsoft: Flat at 17% (was up 32% just days ago before getting hammered)
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Meta: Up 8% (was negative on the year last week)
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Tesla: Up 13% (lagging)
Only Nvidia at 28% and Google at 17% are actually pulling weight. Microsoft barely matches the S&P and could easily fade from here.
The volatility crush everyone is celebrating tells the opposite story. VIX dropped hard. VVIX dropped hard. But back month volatility futures are still elevated. January futures are trading at 19.81. February is at 20.75.
The market knows something retail doesn't. These aren't normal readings after a 250 point rally.
When you have two stocks carrying an entire index, and those stocks are the only thing standing between you and extraordinary volatility, that's not a bull market. That's a house of cards.
Microsoft just fell 16% from recent highs. The concentration risk is staggering. Margin balances at brokerages are at all time highs even after recent volatility. Retail keeps showing up every time the bell rings expecting their treat.
Next week's expected move is only $99 after we just moved 250 points in three and a half days. The market is pricing in less volatility going into a full five day trading week.
That setup is backwards.
The volatility fuse is already lit. The question isn't whether more volatility is coming. The question is whether you're positioned for it with proper risk management.
Watch me break down why this concentration is dangerous and what comes next
To your success,
Don Kaufman
Chief Market Strategist, TheoTRADE
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