The NASDAQ index ended the day on a positive note, with a slight increase of 0.05%, marking a new record. It has set record highs every day this week and hit this milestone 11 times this year. The NASDAQ rose by 11.39 points, closing at 20,895.66. The S&P index fell slightly by -0.01% after reaching a new record level the day before, marking its ninth record in 2025. The Dow industrial average declined by -0.32%, losing 142.30 points and finishing at 44,342.19.

Mixed Trading Results

Throughout the trading week, the indices showed mixed outcomes, though most were higher. The Dow dropped by -0.07%, while the S&P gained 0.59%. The NASDAQ increased by 1.51%, and the Russell 2000 went up by 0.23%. With technology stocks leading the way, we see a market with narrowing support. When one index hits records but another falls, it suggests the rally isn’t widespread. This situation creates potential risks and opportunities for traders. We believe that this focused strength makes the market more vulnerable. Recent research from Bank of America reveals that the top five stocks in the S&P 500 now make up over 25% of the index, a concentration not seen in decades. Traders might consider buying put options on the NASDAQ 100 ETF (QQQ) as a safeguard against a possible downturn in the overheated tech sector. Currently, the cost of this protection is relatively low, making it an attractive option. The CBOE Volatility Index (VIX) has been below 14 for much of the past month, which is historically cheap for buying options. A small investment in VIX call options or S&P 500 put options could yield significant gains if market uncertainty rises.

Relative Value Trades

We also see a chance for relative value trades. One strategy could involve using options to bet on a convergence between the strong-performing NASDAQ and the slower-moving Dow Jones Industrial Average. This could mean selling call spreads on the tech index while buying call spreads on the industrial index, profiting if the performance gap narrows. This market resembles the late 1990s, when the NASDAQ soared while other indices lagged before a major downturn. That time also had extreme concentration in a few tech stocks. Although history might not repeat itself, it serves as a cautionary reminder against chasing a narrow rally without taking precautions. The Federal Reserve’s policy also supports a cautious approach. Recent Consumer Price Index data indicates that inflation remains stubborn. Policymakers have signaled they will likely maintain higher interest rates for longer than anticipated. This economic headwind could eventually impact the high-valuation growth stocks currently boosting the market. Create your live VT Markets account and start trading now.

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