BY MARK SEBASTIAN
November 22, 2024
NVDA reported great earnings…but were they spectacular?
Remember THIS is the chart of NVDA in 2024:
It’s up 190%!!!!
Excitement…leading into earnings was high…and the company beat earnings expectations…
But when you are NVDA and you are up 190%, good is not good enough…only greatness will allow the stock to rally.
This report was not great.
Frankly it wasn’t the earnings themselves that were the problem…it was the guidance…which was GREAT.
This issue was the guidance was inline with expectations … .remember…analysts are dopes and some might say purposely underestimate forward guidance to give these companies room to impress.
Heading into the next quarter NVDA said it was looking for 37.5 billion in revenue…spectacular!….however the market was looking for 37.1 billion and there were high estimates looking for over 40 billion.
With a PE of over 60 for the stock to be where it is … .growth has to be exponential … .each earrings growth bigger than the next…
What I am seeing is that earnings are starting to become linear…meaning it grows…but at a somewhat predictable rate…what that would mean for NVDA is that it would be due for at a minimum a time correction.
A time correction is when a stock sits and sits and sits while earnings grow into its valuation.
If I owned this I would hold…but would I buy as a long term investment…not here…now as a short term trade…that is where Licia comes in.
Nvidia (Ticker: NVDA) the darling of the stock market.
Can it maintain its status quo?
NVDA doubled in the first two months of the year, pulled back and then doubled again in two months.
Since the end of June it has followed along my pitchfork very well:
It also has a very nice upward sloping trendline off that low on September 6th.
As long as NVDA continues to close above that trend line, it will remain bullish.
Keep an eye out for a change in trend candle like Thursday’s which could possibly be a highwave doji signaling mass confusion.
I would not go long NVDA until it clears the most recent highs around $149.50.
As you can see on Thursday, intraday it traded above that level but could not manage to close above it, that is a bit bearish.
Once it clears $149.50, the top of the pitchfork comes in at $164.35.
Support at the trendline is $143.39 and down on the median line sits at $134.77.
The stock may continue to wallow in this area.
I would not pick a direction until it trades away from these support and resistance levels.
NVDA volatility is sneaky cheap
Part of the allure of NVDA is that it just keeps going up. For the most part that is true as it has risen 10x since Oct of 2022 and Revenues have nearly tripled from then. This rally in NVDA is not without some volatility and if I look at 90 day realized vol, it hovers close to 60%. Average realized volatility in NVDA has been quite high since September.
1 year NVDA chart showing IV and 90 day realized volatility
This is a great recipe for buying options. Staying long NVDA is still the right thing to do but a put will also pay every now and then due to the volatility in the stock.
I like the idea of a 0 theta upside with some longer term OTM puts for the downside. Join us Monday when I put the trade together.
Usage of the overused term GOAT (Greatest Of All Time) has been rising in the last few years. Is LeBron or Jordan the GOAT?
Brady or Montana? Federer or Djokovic? Nvidia or….Well, that’s a tough one, but yesterday morning I heard someone on CNBC say there has been no more important company in the last two hundred years than Nvidia. I guess that would make it the GOAT.
And as a result, Nvidia earnings reports are most certainly important. The kind of important where a few minutes before they are released the piano player stops playing. And the results on Wednesday were good enough. Not stellar, but not bad. But now what do we do with Nvidia? Well, it’s not a super expensive stock so I think it has the potential to march upwards as investors accumulate.
We have a fairly significant Call Wall above the current price at $150. Call Walls, meaning where large amounts of option open interest are, often occur around prominent strikes. The $150 level most certainly qualifies. The stock has had trouble getting through it for weeks, but after this report I think Nvidia has the potential to smash through it like the Koolaid man.
As an income guy I’m tempted to let it run to around 155 before selling some covered calls at the December expiry 165 strike. At this point that would be a respectable 12% run higher from here and I would be paid a tidy 1.2% for my trouble for 30 days of work. Getting some nice upside potential plus income for my portfolio? That may not make me the GOAT but I’ll take it.
Out on assignment
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