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The First Sign of a Trillion-Dollar Blowup?
The First Sign of a Trillion-Dollar Blowup?
BY MICHAEL SALVATORE, EDITOR, TRADESMITH DAILY
In This Digest:
- This shadowy corner of the market is sending a warning
- Why scores of financial stocks are triggering “Flash Sell” alerts
- What to do now to protect your downside risk
The world’s biggest money manager just shut the door in investors’ faces…
Most eyes are on the war in the Middle East… rising oil and gas prices… and wild stock moves.
But while investors focus on Iran, something disturbing… and potentially even more dangerous for the bull market… is happening inside a shadowy corner of the financial system.
On Friday, the world’s largest money manager, BlackRock (BLK), told investors in its $26 billion HPS Corporate Lending Fund (HLEND) that they couldn’t have their money back. Not all of it, anyway.
The fund works like this: Investors hand over their cash, the fund lends it to mid-sized private companies, and those companies pay back interest – at higher rates than you’d get from a typical bond.
The catch is that these loans don’t unwind easily. So when too many investors want out at once, it’s first come, first served… while supplies last.
BlackRock caps withdrawals at 5% a quarter. But this quarter, withdrawal requests came in close to double at $1.2 billion, or 9.3% of the fund’s value.
BlackRock paid out roughly half that amount. It told investors still trapped in the fund that they’d have to wait.
And a similar story is unfolding over at Blackstone (BX), another Wall Street titan.
Earlier this week, news broke that investors had tried to pull nearly a record 8% out of its $82 billion Private Credit Fund (BCRED) in just the first two months of the year. Blackstone paid everyone out in full. But to do it, the firm had to pony up $400 million of its own money.
And in February, Blue Owl Capital, another big name in private credit, had to buy back 17% of one of its own funds to stop the bleeding.
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Credit booms and Mega Melt-Ups go hand in hand…
Our CEO, Keith Kaplan, began sounding the alarm on the boom in private and consumer credit a year ago.
He called it out as one of three major signs that markets are in a Mega Melt-Up. Those three signs are:
- A transformative technology:Today, that’s AI. It has investors salivating over potential productivity gains across the economy.
- Easy market access: Free trading apps, fractional shares, and the rise of meme-stock trading make it simpler – and more addictive – for retail investors to jump in.
- Abundant credit: Credit is the lifeblood of every boom. Right now, it’s flowing freely.
The private credit boom is just one symptom of this sign. Emergence of the idea of a 50-year mortgage, along with soaring consumer credit card debt, are just as worrying.
And troubling signs in private credit markets have often preceded meltdowns – the subprime mortgage disaster in 2008 being the most obvious example.
We’ll get to that in a moment… plus how you can protect your portfolio.
First, it’s important you fully understand what’s happening… and why financial stocks like BLK may be the canaries in the coal mine.
A trillion-dollar blowup may have just begun…
Global private credit has ballooned into a $3 trillion industry, up from just $2 trillion in 2020.
It was borne out of a desperate need for higher yields. As inflation ravaged markets in 2022, even the Fed’s rapid interest rate hikes weren’t enough to satisfy investors’ income needs.
The catch – and it’s a big one – is the liquidity.
Private loans don’t trade as easily as stocks or government bonds. So, when too many nervous investors in private credit funds want out, fund managers have to shut the door… which makes investors in those funds even more nervous.
To make a bad matter worse, 19% of BlackRock’s HLEND portfolio is exposed to software – a sector that’s been hammered by AI disruption all year.
And our data shows that the trouble in the financial sector goes much deeper than just these issues with private credit funds.
Scores of financial stocks are triggering “flash-sell” alerts…
That’s going by TradeSmith’s Short-Term Health indicator. It measures a stock’s price action against its recent volatility range to determine whether it’s in a healthy uptrend, a caution zone, or a downtrend.
Think of it like a thermometer reading. A temperature of 99°F might be nothing to worry about. But if your normal baseline temperature is 97°F, that two-degree increase tells your doctor something is wrong.
A Green Zone means buy, a Yellow Zone means hold, and Red Zone means sell.
You can look at this data on the stock and ETF level. You can also track how many stocks in various market sectors are buys or sells.
And right now, after the Technology sector ETF (XLK), the Financials sector ETF (XLF) has the second-highest proportion of Short-Term Health Red stocks in the market:
The Financials ETF flashed a Short-Term Health signal more than three weeks ago. Since then, it’s down more than 13%.
And it seems like every day, more stocks inside that sector are turning bearish, too.
Here are the Short-Term Health Red Zone flips among Financial stocks across the large-cap S&P 500, Dow, and Nasdaq indexes… along with the small- and mid-cap S&P 400, and S&P 600 indexes… over the last seven days:
There’s a lot to notice in this list.
Asset management firm Ameriprise Financial (AMP) flipped Red last Friday, March 6. It fell as much as 4% yesterday.
Bank of America (BAC) entered a Red Zone four days ago. It’s down more than 4% since.
JPMorgan (JPM) – the largest bank in America – flipped Red last week. Since then, the stock has slid about 3%.
And BlackRock (BLK) entered a Red Zone on Feb. 25. Since then, it’s down about 12%. So, our indicator was already bearish on this stock before the troubles at its private credit fund made the headlines.
When the biggest names in asset management, commercial banking, and financial services are all deteriorating at the same time, it’s worth paying attention to.
Short-Term Health is our most sensitive trend shift indicator. We designed it to capture the earliest signs of trouble in stocks and sectors.
But the sea of red in Financials should have you leaning cautious across the board… especially if you hold any of the stocks that have entered the Red Zone as short- to medium-term trades (measured in months, not years).
It’s sending a warning about the health of the bull market. As Keith has been warning, Mega Melt-Ups are always accompanied by surges in private credit. When cracks start to show, it can be an early warning sign that the Melt-Up is in trouble.
Again, the 2008 financial crisis is the clearest example. Financial stocks started cracking months before the broader market collapsed. Investors who were watching the banks saw the warning signs early.
So how do you protect yourself?
You just watched it happen in real time with BlackRock.
Our Short-Term Health indicator flipped Red on BLK on Feb. 25 – nearly two weeks before the private credit news broke. Investors following that signal had the chance to be out of the way before the stock fell 12%.
That’s the power of a well-placed risk management strategy.
And TradeSmith was founded on this same principle.
Far too many investors fly blind on risk management. They buy stocks and ETFs without an exit strategy or a plan B. When volatility hits, gains can evaporate in the blink of an eye… and even turn to losses.
But there’s a simple way to implement risk management in any portfolio: trailing stop losses.
These are orders that automatically sell a position when it falls outside its normal range and rise alongside the stock as it climbs.
It’s the simplest way to stay protected without watching every tick.
TradeSmith’s key innovation is our Long-Term Health indicator, which uses a stock’s long-term historical volatility to set trailing stop-loss levels.
But in a market this volatile, even these “smarter” trailing stop losses need to work faster than they used to.
That’s a point Keith has been making all year. As AI-driven algorithms now execute more than half of all trades on Wall Street, markets can move against you in hours – not days.
A trailing stop calibrated to years of historical volatility is a powerful long-term tool.
But it can be too slow to protect you in the kind of lightning-fast selloffs we’ve seen repeatedly in 2026.
That’s why Keith and the team built a new system specifically for this moment: the Short-Term Health Flash Stop.
Unlike our classic trailing stops – which factor in years of historical volatility data – the Flash Stop looks only at the past six months. It’s more reactive, more sensitive to early warning signs, and designed to get you out faster, with higher potential gains and lower potential losses, before a stock turns ugly.
The BLK signal is a perfect example of what it’s built to do. Our system flagged deteriorating short-term momentum weeks before the fundamental news caught up. That’s not luck – that’s what volatility-calibrated trend signals are built to catch.
And if Keith’s “year of the bear” thesis plays out the way the data suggests it might, it’s the kind of edge that could make the difference between a painful 2026 and a protected one.
Keith recently laid out the full case – the Mega Melt-Up warning signs, the private credit cracks, the century of market cycle data, and how the Flash Stop fits into a defensive strategy for the months ahead – in a presentation for Trade360 subscribers.
If you haven’t seen it yet, you can access it here.
To building wealth beyond measure,
Michael Salvatore
Editor, TradeSmith Daily
