Why Amazon could be the next black swan for the market

Amazon appears untouchable.

It's rallied 37 percent this year, outperforming the market nearly fourfold. And a stunning quarter, reported last month, prompted nearly two dozen firms to up their price targets on the e-commerce giant; a handful of those newly minted price targets place the company north of the $1 trillion threshold.

But at this juncture, I suspect a black swan has taken flight. Just consider the stock's presence in so many passive vehicles.

An overwhelming passive presence

Amazon is a top holding in over 140 exchange-traded funds. A liquidity event for Amazon shares — perhaps triggered by issues related to the Trump administration's ordered review of the company's impact on the U.S. Postal Service — would create uncontrollable selling, in our view.

Zooming in further, around 40 ETFs hold Amazon within the top 5 percent. Look out below: This is a colossal failure of common sense.

A passive overdose

Investors have been stuffing themselves on a Thanksgiving feast full of technology stocks. Today, tech sector equities comprise nearly 30 percent of all large-cap mutual fund portfolios; this is an accident waiting to happen.

This represents the largest "overweight" relative to traditional benchmarks, relative to other large-cap sectors, in two decades. This represents, too, nothing more than a passive overdose on big tech, setting up large downside risk.

This development causes me to hearken back a decade.

Of course, who could possibly forget the great gorging on the financial sector heading into the crisis? Leading into 2007, banks and insurance companies comprised nearly 24 percent of the S&P 500. Today, the tech sector's large market weighing puts it up near 26 percent of the market's total capitalization.

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Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Sara Eisen

Sara Eisen joined CNBC in December 2013 as a correspondent, focusing on the global consumer. She is co-anchor of the 10AM ET hour of CNBC's "Squawk on the Street" (M-F, 9AM-11AM ET), broadcast from Post 9 at the New York Stock Exchange.

In March 2018, Eisen was named co-anchor of CNBC's "Power Lunch" (M-F, 1PM-3PM ET), which broadcasts from CNBC Global Headquarters in Englewood Cliffs, N.J.

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