Sven Henrich: 'Why I Moved To Cash This Week'

Here's what spooked him...

When Sven Henrich of NorthmanTrader.com was last on this program, he admitted he was a reluctant bull.

He just wasn't seeing any material barriers that stood in the way of the ongoing bul rally in stocks at that time.

At the end of our conversation, I asked him to come back on this program when his technical analysis tells him conditions have changed.

Well, Sven just reached out last night, letting me know that he has closed out all his longs this week and moved to cash.

Why? What has him so spooked?

In today’s interview we ask the man himself.

A big part of it is that recently we’ve seen very unusual moves in markets in a short period of time i.e, the Russell +11.5% in 8 days then VIX +33% in 5 days.

To understand what all this means, click here or on the video below:

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Adam’s Notes: Sven Henrich (recorded 7.18.24)

EXECUTIVE SUMMARY

• Sven highlights that five major tech stocks now constitute nearly 30% of the S&P 500 index. This concentration creates significant vulnerability, as any substantial downturn in these key stocks could negatively impact the entire index despite broader market strength. This level of concentration is unprecedented and deviates from the traditional concept of a diversified index, emphasizing the potential for significant market swings based on the performance of a few companies.

• The recent surge in small-cap stocks and broader market participation could be a positive sign, suggesting that more sectors are joining the rally. However, Sven cautions that this shift needs careful monitoring. But while the broader market strength is encouraging, the overall index could still decline if the dominant tech stocks face major corrections. This broadening market participation should ideally lead to a more sustainable rally, but the disproportionate weight of the top tech stocks means that their performance still heavily influences the market's direction.

• The S&P 500 has reached a critical Fibonacci level (1.618), a key technical indicator showing signs of potential pullback. This level has been tested multiple times, indicating strong resistance. Sven emphasizes the importance of technical analysis in current market conditions, suggesting that investors should be cautious and prepared for potential reversals. Observing how the market reacts at this level will be crucial in determining the next directional move.

• Despite a significant spike in the VIX (Volatility Index), markets have not