VIX Trending Lower

The Option Pit VIX Traffic Light Is Yellow: Volatility is likely to move wildly.


Despite troubles at PACW the S&P 500 closed only down 7 points.


How?  The answer is the QQQ,  the QQQ closed the day up .33%.


But look underneath the hood and things are not so shiny.


This is QQQE,  it equal weights the QQQ instead of the market cap weighting that is in QQQ.



Its performance over the last few weeks has been down, on Thursday the ETF was actually down.


Now look at the QQQ



These two charts are night and day,  one is meandering lower (QQQE)  the other is booming higher …


What is going on here?


The answer is concentration.


Look at the top 6 components of the QQQ (if you pair GOOG and GOOGL).


 


They make up over 50% of the index.


The same companies make up 25% of the S&P 500.


The market as a whole kind of stinks right now … unless you are these specific 6 companies.


Monday is piling into them … which is holding up the market.


What happens if there is some bad news and a bunch of people try to sell some of these names?


Do you know why it is illegal to yell FIRE in a crowded theater when there is no fire?  Because it can cause a stampede.


The same scenario is building in the major indexes.


Questions about that? Leave a comment below!


Your Only Option,


Mark Sebastian

Mark Sebastian

Mark Sebastian is a former member of both the Chicago Board Options Exchange (CBOE) and the American Stock Exchange (AMEX), where he spent years mastering the art of options trading in the most competitive environment imaginable. As Chief Investment Officer at the hedge fund Karman Line Capital, Mark manages sophisticated options strategies for institutional clients. He is the author of two highly regarded books on options trading: ‘The Option Traders Hedge Fund’ and ‘Trading Options for Edge.’ Mark is a frequent guest on major financial networks including CNBC, Fox Business News, Bloomberg, and First Business News, where he provides expert commentary on market volatility and options strategies.

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About the Author

Mark Sebastian

Mark Sebastian

Former CBOE floor trader and CIO at Karman Line Capital. Author of ‘The Option Traders Hedge Fund’ with over 30 years of options trading experience.

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