Is the Trump rally already in jeopardy? The line stocks cannot 'afford' to cross

There's a key technical level which could disrupt the market rally sparked by Donald Trump's win, according to a widely followed market watcher.

"If you look at the long-term chart of the S&P [500 Index] futures, this week we actually saw a test of the long-term support trend line back to 2009. That only happened after-hours and in overnight action,"said NorthmanTrader founder Sven Henrich recently on CNBC's "Futures Now."

However, he added "that confirms this trend line. It's a very steep trend line. It's an important trend line."

Henrich estimated there's 100 percent chance that this line will be breached — it's just a matter of time.

"We just tested this trend line this week, hence the bounce made sense. Should we break below this week's lows then markets will get severely tested," said Henrich,

Henrich argues investors are seeing 'quite the panic sector rotation' right now. And, it's been helping to drive the Dow to all-time highs. He's also forecasting volatility levels are bound to increase significantly going into next year.

"While we see this massive rally in the last week, we need to be keeping in mind that on the short-term chart, we actually have broken the February trend line that would support from February into Brexit," said Henrich.

"We broke it in September and now we are re-testing it from the underside. Until we break above that, this rally is still very suspect," he added.

There's another element to the market which concerns him. Henrich predicts FANG stocks, otherwise known as Facebook, Amazon, Netflix and the former-Google, are positioned to see a lot of trouble because they are too stretched.

His observation comes amid growing speculation that President-elect Trump's policies could hurt technology companies.

"If you look at the Nasdaq 100 Index which made new all-time highs this summer, it was really just a few stocks that have been driving this," said Henrich.

"Ten stocks in the Nasdaq 100 comprise of 50 percent of the market cap, and these stocks are now selling off here... Since they are very high weighted in cap, that could cause some damage on the indices."

Contact Futures Now

  • Showtimes

    Watch Futures Now Tuesdays & Thursdays 1p ET exclusively on cnbc.com!

Sponsor Links

  • CME Group brings buyers and sellers together through its CME Globex electronic trading platform and trading facilities in New York and Chicago.

  • Take your trading to the next level with a platform that lets you trade stocks, options, futures and forex all in one place with no platform or data with no trade minimums. Open an account with TD Ameritrade and get up to $600 cash.