Markets rise but “huge amount of leverage” poses risk

Markets rose on Tuesday.

The S&P 500 jumped 1.4 percent, the STOXX Europe 600 rose 1.3 percent and the Shanghai Composite rose 0.8 percent.

Broad market indices rose as speculative, retail-driven stocks fell sharply. GameStop fell 60 percent while AMC Entertainment fell 41 percent.

“Upon seeing that gravity still works and fundamentals do matter, other market participants are once again comfortable going back into the market and that’s likely been driving this week’s comeback rally,” said Max Gokhman, head of asset allocation at Pacific Life Fund Advisors.

Michael Bapis, managing director at Vios Advisors at Rockefeller Capital, told CNBC that the recent weakness spells opportunity.

“We look to buy on dips right now because there is so much cash on the sidelines that people are just waiting for the time to jump in,” he said.

Matt Maley, chief market strategist at Miller Tabak, was more cautious.

“When we saw this sell-off in the market last week, it was forced selling, it came from a huge amount of leverage in the system,” he said. “What it tells me is that, at some point, some of that margin debt, that leverage, is going to be unwound.”

While that unwinding “will create a great buying opportunity”, there “will be a deep correction”.