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Don Kaufman here. |
Here's the thing… |
The S&P 500 closed up 0.6%, the Nasdaq is doing its best impression of a rocket ship, and Microsoft and Meta are dragging the market higher with their AI-fueled earnings beats. Sounds great, right? Well, not so fast. |
Because if you're paying attention—and I mean really paying attention—you'll see that this market still reeks of fragility. |
Sure, Microsoft and Meta are hogging the spotlight, but let's not ignore the fact that Amazon and Apple are both trading lower after hours. |
Amazon missed on cloud revenue (again), and Apple's Services division came up light. |
Both stocks are down in extended trading, and that's a big deal. |
Why? Because even though this rally feels strong, it's standing on shaky legs. |
Let's break it down. |
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A Tech Rally Built on Two Pillars |
Let's not sugarcoat this: today's rally was driven almost entirely by Microsoft and Meta. |
These two names are carrying the Nasdaq like it's their personal responsibility. Microsoft popped 7.6%, Meta climbed 4.2%, and together, they're doing the heavy lifting for the entire tech sector. |
But here's the problem: when a rally is this narrow, it's like balancing a boulder on two toothpicks. One wobble, and the whole thing could come crashing down. |
And now we've got Apple and Amazon—two of the biggest names in the market—trading lower after hours. Amazon disappointed again on cloud revenue, and Apple? Let's just say their Services numbers didn't exactly inspire confidence. |
This is what I mean when I say the market is fragile. It's running on momentum from a few names, but the cracks are starting to show. |
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Volatility Refuses to Back Off |
Let's talk about the VIX. It closed at 24.60 today, slightly down, but don't let that fool you. |
Normally, when the S&P 500 is up 0.6%, you'd expect the VIX to drop significantly. Instead, it's just hanging out, like it knows something the rest of the market doesn't. |
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And let me tell you: when volatility refuses to back off during a rally, it's a giant red flag. The market is telling us it doesn't trust itself. It's like smiling for the camera while sweating bullets off-screen. |
With the VIX this elevated, the market is bracing for more fireworks. Whether it's earnings, economic data, or some unexpected headline, the VIX is saying, "Don't get too comfortable." |
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Liquidity: The Missing Ingredient |
Here's another thing that should have you worried: liquidity is nowhere to be found. |
Today's rally might look solid on the surface, but when you dig a little deeper, you'll see that the order books are thin, and the volume just isn't there. Without liquidity, every little move gets exaggerated, which is why the market feels so fragile. |
Think of liquidity as the market's shock absorber. When it's missing, even small bumps feel like major jolts. That's why we're seeing these wild swings, and it's also why this rally feels so precarious. |
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Amazon and Apple: The Cracks in the Foundation |
Now, let's get into the after-hours action. Amazon and Apple are both trading lower, and here's why that matters. |
Amazon: |
Amazon's AWS (cloud) revenue missed estimates for the third straight quarter. Yes, the cloud business is still growing at 17%, but that's a slowdown compared to the 18.9% growth it posted last quarter. When your biggest competitor—Microsoft Azure—is crushing it, that kind of miss doesn't go unnoticed. |
The market doesn't like slowing growth, especially in a business as critical as cloud computing. Amazon is down 4% after hours, and that's going to weigh on sentiment heading into tomorrow. |
Apple: |
Apple beat on earnings and revenue, but their Services division—a key area of growth—came in slightly below expectations. And let's not forget: Apple's gross margins were also weaker than expected. |
Here's the thing: Apple is a bellwether. When they stumble, it sends a ripple through the market. The stock is down 2.4% after hours, and that's a problem for a market that's already leaning heavily on Big Tech to keep the rally alive. |
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How to Trade a Market This Fragile |
So, how do you trade a market that's rallying on the back of a few names while the rest of the tape feels like it's cracking? Here's your playbook: |
1. Stick to Defined-Risk Strategies |
This is not the time to swing for the fences. Use defined-risk strategies like butterflies or vertical spreads. These give you exposure to the market while capping your downside. |
2. Watch the Leaders |
Microsoft and Meta are the pillars holding this rally up. Keep a close eye on them. If they start to fade, the rest of the market will likely follow. |
3. Avoid Illiquid Names |
Liquidity is thin across the board, but it's especially bad in smaller, less-traded names. Stick to the big players where you know you can get in and out without massive slippage. |
4. Prepare for Two-Sided Action |
The VIX is still elevated, which means the market is expecting big moves in both directions. Don't get caught off guard. Be ready to pivot if the market flips the script. |
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Don't Get Complacent |
Today's rally might look good on paper, but don't let it lull you into a false sense of security. This market is fragile, liquidity is thin, and volatility is still elevated. |
And now, with Amazon and Apple trading lower after hours, the cracks in the foundation are starting to show. |
So, trade smart, manage your risk, and don't let the market catch you off guard. |
To your success, |
Don Kaufman |
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Don Kaufman Presents: |
The Green Guy |
In a Sea of Red, One Man Has Managed To Stay Green… |
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