| | | | Where Do We Stand After Friday’s Flushout? And a Special Guest Interview
First, don’t miss today’s Daily Chart Setup trade idea down lower in this newsletter.
The market was frothy. Trump had talked about tariffs on China dozens of times up until Friday's post about 100% tariffs, yet Friday is when the market took a 2+% step back, we’ll cover that and more, and I have a special guest joining us for an interview!
Come join me as we dive in and see what’s moving!
Plus, as always, we have stocks popping and dropping so come find out what is moving this morning as I look for stocks and do some live premarket analysis on SPX, SPY, NDX, QQQ, Russell, IWM and other stocks that are potential plays for the day.
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The Return of Volmageddon: Why $119 Billion in Leveraged ETFs Could Vanish Overnight
I need to talk to you about something that's keeping me up at night, and if you're trading leveraged ETFs — or thinking about it — you need to hear this.
There's $119 billion sitting in leveraged equity ETFs right now, and most traders using these products have absolutely no idea what they're really holding. These aren't stocks. They're not even normal ETFs. They're financial products engineered with a mechanical design that can — and has — destroyed billions in wealth in a matter of minutes.
Let me take you back to Feb. 5, 2018.
The VIX exploded that day, and a product called XIV — a leveraged short volatility ETF that traders loved — lost 97% of its value in 30 minutes. Not 30 days. Thirty minutes. Billions of dollars vanished into thin air.
That event became known as Volmageddon, and it should have been a permanent lesson for anyone playing with leveraged products. But here we are, years later, and the same dangerous setup is back — only now it's bigger.
The Product That Just Went to Zero
I was reading an article recently that gave me serious déjà vu. A 3x leveraged short on Advanced Micro Devices (AMD) got completely liquidated — wiped out, balance zero. The company that issued it, Granite Shares, posted a notice essentially saying, "Sorry, your money's gone. Better luck next time."
That's not hyperbole. Shareholders got nothing.
Here's what makes these products so dangerous: They use daily rebalancing, which means when things go bad, they have to sell into panic — and that selling makes the panic even worse. It's like pouring gasoline on a fire while you're playing with matches and carrying nitroglycerin in your pocket.
Look at what's out there right now. Before Friday’s dump, Direxion Daily Semiconductor Bull 3X Shares (SOXL) was up 57% year-to-date. MicroSectors Gold Miners 3X Leveraged ETN (GDXU) is up 700%. Those gains look amazing until you understand the mechanical risk underneath them.
Then you've got products like ProShares UltraPro QQQ (TQQQ), GraniteShares 1.5x Long Nvidia Daily ETF (NVDL), and Direxion Daily TSLA Bull 1.5X Shares (TSLL), which is already down 24%. And companies are now requesting SEC approval to bring even more 3x leveraged products on individual volatile stocks to the U.S. market.
The VIX Is Sleeping — But It's a Light Sleeper
The VIX is sleeping right now, but it's a light sleeper. When it wakes up — and it will wake up — something's going to blow out. That $119 billion sitting in leveraged equity ETFs? A chunk of that can go poof in a single volatility event.
Here's my core message: These are not blue chip stocks. You don't buy and hold them. These are trades. You date them. You don't marry them.
If you're holding leveraged ETFs, understand what you own. These products are designed for short-term tactical trades, not long-term positions. The mechanical design guarantees decay over time, and in a volatility spike, they can suffer catastrophic losses that wipe out shareholders entirely.
I'm not saying avoid them completely — I trade them myself. But respect what they are. Manage your position sizes. Use stops. And for the love of everything, don't treat them like traditional investments.
The lesson from 2018 was supposed to be permanent. Don't let history repeat itself with your capital.
Now be sure to join me live at 9:15 a.m. ET for “Morning Monster,” my market-open livestream on YouTube!
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