Theme of this week, Volatility!
The financial report of the world's most important stock, $NVIDIA Corp(NVDA)$ has already passed, and it has successfully brought back the risk sentiment for tech stocks. Currently, there are three factors to consider:
Hedge funds have a very concentrated position in tech stocks. Although the Q4 13F disclosure showed a small reduction in positions, the increase in stock prices this year will definitely continue to raise the percentage of positions.
Techs’ valuation is moderately high, but far from reaching a bubble.
For diversification purposes, investors are also looking for replacements and hedges.
Valuation perspective
For PEG, companies like $Meta Platforms, Inc.(META)$ and NVIDIA (NVDA) have much lower values than $Apple(AAPL)$ and Amazon (AMZN).
Looking at the forward P/E ratio, Meta Platforms (META), NVIDIA (NVDA), $Alphabet(GOOGL)$ and $Alphabet(GOOG)$ are also lower than several other tech giants.
So, if we were to say that the valuation is high, then theoretically the correction should not be for companies like NVDA.
Of course, the AI market has led to crowded trading, and the derivative trading of NVDA, as well as the sharp rise and fall of companies like $SUPER MICRO COMPUTER INC(SMCI)$ are also a reflection of speculative FOMO sentiment.
According to data from S3 Partners, the short position of the "big seven" has decreased to 1% of the issued shares, hovering near the lowest level since at least 2015. This means that a Short Squeeze market may be difficult to occur at this point, and instead there may be more "potential shorts" (longs taking profit).
In this situation, stocks that were popular trades last week, despite a decrease in volatility, still have the potential to continue falling. Apart from the PCE this week, there are no other major events at the individual stock level. Even the gamma of the overall market has decreased, entering a period of low volatility with minor fluctuations, and the volatility will continue to be compressed.
Although $Cboe Volatility Index(VIX)$ experienced slight fluctuations last week, similar movements are still possible this week.
Personally, I lean towards stocks that previously had high speculative sentiment and experienced an increase in IV, such as SMCI, which may further normalize; while this week's increase in IV may be seen in bonds and other safe-haven products.
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