The Rift Is Coming

Andrew Giovinazzi

Yo Pit Crazies,

As we have mentioned, Invesco is cutting down the impact of the Magnificent 7 – Alphabet Inc (Ticker: GOOGL), Amazon.com Inc (Ticker: AMZN), Apple Inc (Ticker: AAPL), Netflix Inc. (Ticker: NFLX), Nvidia Corp, (Ticker: NVDA), Microsoft Corp (Ticker: MSFT), and Meta Inc (Ticker: META) – on the Invesco QQQ Trust (Ticker: QQQ). For some reason, seven stocks with 55% of the market capitalization in QQQ is too much.

This rebalance could cause a bit of mess. Right now, folks who shorted these stocks early this week are getting a rude surprise, as decent CPI and PPI numbers gave the market a little lift:

We have some great trades working in Nitro Trader this week. They were somewhat “front loaded” because of the squeeze potential. That just means a less aggressive tech short versus a more aggressive “other” long. We teach you how to do these in the services… but just know for now that we saw this coming and created a great trade to take advantage. If you’re reading this now and aren’t in the services… you’ll want to pay attention to our editorial on the “rifts” coming over the next week and into the rebalance in the BIG 7 coming.

This squeeze should only make the eventual selloff worse. How do I know that?

The Tale Is in the Volatility

Yes, I know I sound like a broken record …

My more clever students will notice that both SPX and VIX were up – not what I want to see if things are nice and relaxed. Note below the SPX Aug18 4500 call strike. The IV was up on a day like today. SPX went up right through the strike and the IV kept up.

That’s just the liquidity providers saying, “The ride is going to keep going.” Short term, the squeeze up will keep going until funds have to sell.

That’s going to cause dislocation – Mark calls it a rift.

I bought a SPDR S&P 500 Trust ETF (Ticker: SPY) strangle in the Pro session close Thursday. The pricing is sneaky cheap. But that’s for this weekend’s post.

What a week!