Beauty and the Beast

Andrew Giovinazzi

Yo Pit Crazies,

J-Pow went for a pause Wednesday.

The market yawned a bit as VIX managed to get back to the 13 handle again for 2023. Once again Big Tech led the way with Nvidia Corp (Ticker: NVDA) joining the trillion dollar club on $27 billion in yearly revenue and up $19 today alone. I guess the only winner from AI will be NVDA.

Yes, I know that’s the story, but it’s not going away. I haven’t gone hard into my thesis that Main Street businesses will eventually be the big productivity winners with AI. The reason being it’s been the same for every tech boom – Main Street stocks benefit eventually, with big productivity gains.

You missed out buying stocks in 2002? A six year run after that for Main Street until the GFC wrecked it.

Take a look at regional banks with the KBW Regional Bank Index ETF (Ticker: KBH). The compare chart with the Invesco QQQ Trust (Ticker: QQQ) is a picture of Beauty and the Beast:

QQQ and KBH over the last 6 months with IV/HV for KBH on the bottom chart

Let me tell you what I think.

KRE Realized Vol Is Still Too High

This is very similar to the chart for INTC yesterday – very high realized vol with relatively cheap options. My INTC trade for Easy Button ended up with a nice win, and I think KRE could do the same thing.

Also, everyone is screaming to short the QQQ. I wouldn’t short it without owning a protective call. Valuations are high, but that doesn’t mean they can’t go higher.

KRE was down Wednesday after the Fed spoke. The old CW was that higher rates are better for banks, but I haven’t seen that in the stock prices yet. Folks are buying NVDA and QQQ because the trend is strong, but higher rates are supposed to be bad for tech! Go figure.

KRE looks like it wants to break out, and the daily movement is still high relative to last year. If 2022 didn’t break KRE, I don’t think a Fed pause will either.

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