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!
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