Nverse Nvidia

    Date:

    Something strange happened over the past three days.  Key indices, the S&P 500 (SPX) and Nasdaq 100 (NDX) traded higher or lower along with Nvidia’s (NVDA) moves those days.  Or, should I say, they followed NVDA higher or lower?  It’s hard to say.  But on each of those days, key advance/decline metrics moved in the opposite direction.  Who’s driving this market?

    Admit it, how many of you saw today’s headline and thought that this piece would be about an inverse NVDA ETF, such as NVD (GraniteShares 2X Short NVDA ETF)?  That’s understandable.  NVDA surpassed Tesla (TSLA) not only as the most active stock and options class on the IBKR platform several months ago, while NVDL, the 2X leveraged NVDA ETF, is consistently also among the more active stocks at our firm.  More importantly, NVDA and some of its other AI-related peers such as Broadcom (AVGO), AMD, and Micron (MU) better capture the market’s zeitgeist than TSLA these days.  As interesting as Elon Musk remains, Jensen Huang is much more the man of the moment.

    The market’s reaction to MU’s earnings report is giving many of us pause this morning.  As I write this, that stock is over -7% lower despite beating street estimates on the top and bottom line.  The problem is that the company didn’t raise expectations sufficiently.  They dared only to match public expectations, not exceed them. 

    This is a huge concern.  When you get a reaction like MU’s, where the numbers should be good enough to avoid a selloff, let alone spur a rally, that’s a bad sign – a tell that expectations are so high that they can’t be exceeded.  That said, NVDA has been able to do it consistently – making them a truly astounding company – but what happens if they do something similar to MU?  Would the act of merely acknowledging exceptional expectations rather than once again raising them lead to a significant downdraft?

    This is a concern that we raised before each of the last two earnings reports from NVDA, and we are likely to raise it once again in late August.  Just because the risks have proved unfounded before doesn’t mean that they have disappeared.  If recent storms have failed to do damage in your area (thankfully), it doesn’t mean that the risk of future storms is now zero.  The risk remains.  And MU’s behavior today is a reminder of that. 

    This is why I point out the odd market behavior that we’ve seen this week.  On Monday, NVDA was lower, along with SPX and NDX.  But NYSE and Nasdaq Advances/Declines were solidly positive (about 1.5:1).  Then, on Tuesday and Wednesday, the opposite occurred.  NVDA, SPX and NDX all rose, but both sets of Advance/Declines were negative by roughly the same margin as they were positive on Monday. 

    Frankly, I’m not sure what, if anything, this means.   We have discussed the various divergences and weakening underpinnings of the current market for some time.  This is clearly among them.  It could also be a feature of portfolio managers repositioning ahead of tomorrow’s end of the quarter, as investors move from mega cap tech to value and vice versa.  Or it could simply be that NVDA is the Atlas holding up the whole market.

    Heck, I’ve been saying for some time that “It’s Nvidia’s World, We’re Just Living (and Investing) in It”, or that “it’s Nvidia’s market and we’re all just trading in it.”  That’s very much been the case from the standpoint of major indices, but much less so when we look under the surface.

    Disclosure: Interactive Brokers

    The analysis in this material is provided for information only and is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad-based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation by IBKR to buy, sell or hold such investments. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.

    The views and opinions expressed herein are those of the author and do not necessarily reflect the views of Interactive Brokers, its affiliates, or its employees.

    Disclosure: ETFs

    Any discussion or mention of an ETF is not to be construed as recommendation, promotion or solicitation. All investors should review and consider associated investment risks, charges and expenses of the investment company or fund prior to investing. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.

    Disclosure: Complex or Leveraged Exchange-Traded Products

    Complex or Leveraged Exchange-Traded Products are complicated instruments that should only be used by sophisticated investors who fully understand the terms, investment strategy, and risks associated with the products.  Learn more about the risks here: https://gdcdyn.interactivebrokers.com/Universal/servlet/Registration_v2.formSampleView?formdb=4155

    Disclosure: Options Trading

    Options involve risk and are not suitable for all investors. Multiple leg strategies, including spreads, will incur multiple commission charges. For more information read the “Characteristics and Risks of Standardized Options” also known as the options disclosure document (ODD) or visit ibkr.com/occ

    Go Source

    Chart

    SignUp For Breaking Alerts

    New Graphic

    We respect your email privacy

    Share post:

    Popular

    More like this
    Related

    Algorithmic Trading: What it is, How to Start, Strategies, and More – Part II

    Learn about Algo Trading Strategies with Part I. How to...

    Today It’s the FOMC’s Turn

    Like them or not, the folks at the Federal...

    StockTok: Trump Media shares in focus following election win, M&A speculation

    Recapping Meta’s third quarter results, Apple mulls smart glasses...

    Chart Advisor: Palantir Outperformance

    From SIA Charts 1/ Palantir Technologies Inc. (PLTR) 2/ Index Report 3/ Point...