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Nvidia Earnings: Buckle Up

Swingly Exposure Status: Moderate Risk

OVERVIEW
Let The Rollercoaster Begin

In after-hours trading today, we will see the earnings report for the golden boy of AI, quantum computing, and possibly the entire stock market: Nvidia.

Nvidia has been the strongest stock in recent memory, consistently exceeding expectations and continually surprising everyone with its incredible strength. The company’s earnings and revenue have grown exponentially over the last five years, and this trend is likely to continue.

This report is actually more important for the general market’s health than you may initially think. If you have been trading for a while, you would have heard of the “Magnificent Seven.” While there are six other stocks in this grouping, the one that is yet to report—and the one people may be the most bullish on—is Nvidia. Assuming we see a strong reaction in after-hours trading, this is likely to give a powerful breath of upward momentum to the Nasdaq and S&P 500, which will trickle down to smaller capitalization stocks. This could tempt even more investors who may be sitting on the sidelines or currently shorting—to get involved in the action and drive demand even higher.

However, this is also applicable in a bearish scenario. If Nvidia delivers a weak earnings report or if the market reacts negatively to their report, it will cause turbulence, impacting the market from large to small caps. This can shake investors out of positions due to the onslaught of temporary volatility.

Our strategy for this situation involves waiting. We're likely not going to take any positions in today’s session, opting instead to sit on the sidelines until tomorrow’s session. After that, we'll assess and determine a potential play based on Nvidia's earnings and any episodic pivot (EP) that may occur.

We will outline our play on Nvidia in tomorrow’s report in greater detail, but, we are likely going to enter with a 3x leveraged ETF to maximise our long exposure.

Nasdaq

QQQ Daily Chart

In yesterday’s session, the large caps extended their upward momentum, surpassing $455. The visible range volume profile (VRVP) indicated strong demand and minimal seller aggression at these recent highs, as evidenced by the blue (buying) volume outweighing the yellow (selling) volume.

An important observation is the decreasing volume throughout this rally, suggesting lower market participation as prices continued to climb. However, the imbalance between buyer and seller aggression remains heavily biased to the upside, indicated by the VRVP and the ongoing uptrend.

Predicting today’s session is challenging, but one thing we don’t anticipate is a sharp sell-off down to the daily 10-EMA. This is due to the robust demand observed at all levels between $448 and the current share price.

The most likely event we see if an inside or small green day whilst the market prepares itself for Nvidia’s earnings.

S&P Midcap 400

MDY Daily Chart

The MDY appears poised to initiate another upward movement, as evidenced by price contraction over the past few sessions accompanied by decreasing volume. Additionally, support has been established on the rising 10-EMA.

Over the past three candles, there has been minimal downward movement compared to last Thursday's significant rejection candle around $556. This indicates strong support from buyers at these levels, with sellers showing passive aggression and refraining from becoming overly confident. Such behavior is typically bullish.

We anticipate a sharp move in either direction by the end of this week. Our bias leans towards a bullish outlook, considering the prevailing climate and sentiment in the equities market, as well as the recent behavior of the majority of stocks.

Russell 2000

IWM Daily Chart

The small caps are in a very similar position to the MDY. A small VCP (Volatility Contraction Pattern) is clearly forming above the rising daily 10-EMA, with a significant volume of shares being traded between $207 and $208.

Our bullish stance on the small caps remains unchanged. However, we are acknowledging the IWM's more speculative nature and its tendency to exhibit volatile moves in either direction.

In today’s session, we anticipate a potential short-term decline to fill the low volume cluster down to $206.75, although this represents a more bearish outlook. Given the prevailing sentiment and market climate, the more probable scenario is for demand to intervene, either maintaining sideways trading for the IWM or initiating a breakout above $209.

DAILY FOCUS
Preserving Our Capital: Waiting for NVDA

Currently, we have exposure in several stocks that have been performing well, and we see numerous setups which we intend to execute on in the upcoming sessions. Considering the significance of Nvidia's earnings report and the potential volatility it may bring, we anticipate turbulent conditions in the next two trading sessions. Therefore, we have decided to maintain our current positions and observe how the earnings report unfolds tomorrow.

Today, we do not plan to enter any new positions unless an opportunity presents itself as a gold standard. This cautious approach is due to the higher probability of being shaken out if Nvidia adversely impacts the market tomorrow with a negative reaction to its earnings.

WATCHLIST
Save These

ROOT: Root, Inc

ROOT Daily Chart

  • Root continues to consolidate, unfortunately shaking us out of our long position entered last Friday when the stock retraced back into its Volatility Contraction Pattern (VCP).

  • Despite this setback, our bullish sentiment on the stock remains unchanged. We are patiently waiting to see whether it will continue to respect its ascending support level and subsequently break, once again, above $66.75, triggering another long position for us.

SOUN: SoundHound AI, Inc

SOUN Daily Chart

  • SOUN exhibits robust revenue growth, a positive indicator, and its association with "AI" in its name has garnered significant buyer attention during the last rally.

  • Although SOUN is relatively speculative due to its limited trading history, it's showing signs of forming a Volatility Contraction Pattern (VCP) above all of its daily EMAs.

  • During the previous rally, the company showcased a remarkable +230% move, with no weak close below its 10-EMA.

  • Given the recent upward movements of major AI players, SOUN holds the potential to replicate such a move, especially with Nvidia's earnings looming tomorrow.

This newsletter does not provide financial advice. It is intended solely for educational purposes and does not constitute investment advice or a recommendation to trade assets or make financial decisions. Please exercise caution and conduct your own research.

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