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I'm watching Google claw its way up 6% today while the advance-decline line is absolutely getting crushed. 

You've got 90 products trading to the downside, but because Google (GOOGL), Tesla (TSLA), and Broadcom (AVGO) are having a party, everyone thinks we're in some kind of bull market.

This is not a bullish day. This is not a nice little bounce over here.

The New Market Reality
 

Here's what's actually happening that nobody wants to talk about. 

The market has become a battle of market cap, pure and simple. 

The biggest and baddest market caps are propping everything up while the rest of the market gets slaughtered.

It's tech versus the world right now. Google's at highs and we're still slipping. The financials are down a full percent. Energy sector's getting hammered. But because a few mega-caps are flying, volatility is actually dropping.

That's not normal market behavior. That's something else entirely.

Let me explain what's really going on behind the curtain. 

There are computer systems out there - and statistical arbitrage has been around since the 1970s - that trade both the S&P futures and every major component stock simultaneously.

Picture a computer system so powerful it can trade the S&P futures with me, and that same computer also trades every component in the S&P 500. It really does. The good arbitrage systems don't trade everything - they trade the top 50 stocks that really make a difference.

Here's how it works. 

When the S&P drops, what it does is it fires sell orders into every component of the S&Ps. They're trying to figure out how many S&P contracts equal how many shares of Google, and that's exactly what statistical arbitrage is.

The Breaking Point
 

Picture Google trying to climb up a slippery slide. It's capable of doing so because it's so freaking big - the mass of Google is huge. 

But what happens is we hit this breaking point in the advanced decline line, and all of a sudden servers turn on and start selling everything.

Google is trying to claw its way up, and all of this weight over here eventually what it's gonna do is it's just gonna cave, and all the arbitrage is gonna pile into stuff like Google and start to sell it.

Never think that individual stocks really trade in autonomy. 

We said that about Tesla for the longest time - Tesla, is its own animal. But when the proverbial shit hits the fan in the marketplace, and you start to pull the advanced decline line, statistical arbitrage will sell Tesla right back down that slide.

Why This Matters for Every Trader
 

You can't trade individual stocks in isolation anymore. Not when three or four mega-caps can single-handedly move the entire index while the majority of stocks are falling.

The most frustrating part? 

People look at days like today and step in here and go, "That's not an undetermined path, man. That's straight up." Yeah, you're looking at the chart, you're not actually digging into what is the driver behind it.

The truth is there's just not a lot of size really behind some of the moves that you're seeing on the screen right now.

The Bottom Line
 

We're not trading a market anymore. 

We're trading a handful of stocks that are big enough and strong enough to offset anything else in terms of sell-side activity.

The advanced decline line could be absolutely squashed - you could have 90 products trading to the downside - and volatility may remain down because the marketplace views itself as stuck. 

You've got the big products driving to the upside, everything else driving to the downside, and the S&Ps are literally caught in the middle of it.

That's one of the reasons we're seeing such huge moves. It's as fierce as it gets when you're seeing 10, 12 point moves on a one-minute basis.

And you know what?

This will create a volatility powder keg. Those who are prepared will take advantage and those who are not will suffer. 

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