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Pick Your Fighter: Nvidia VS FED

Swingly Exposure Status: Risk On

OVERVIEW
Let The Fun Begin

In after-hours trading on Wednesday, Nvidia reported a staggering 628% increase in profits and a 268% rise in revenues compared to the same period in 2023. This remarkable achievement is largely driven by its AI-focused datacenter division, which generated $22.6 billion in revenue last quarter—a 427% year-over-year increase and a dramatic leap from the $1.1 billion earned in 2020.

Additionally, Nvidia announced a 10-for-1 stock split set for June 7 of this year. This move will reduce the share price from approximately $950 to $95, making it more affordable for investors and employees to purchase whole shares. The stock split will maintain the company's overall valuation, enabling a broader range of investors to participate in Nvidia's growth. This is likely to significantly increase buying demand as more people will look to accumulate positions at these prices.

This news is not only exciting for Nvidia but also for the broader equities market. Had Nvidia's earnings report disappointed, it could have triggered a significant sell-off, impacting the Nasdaq and other major indices, and severely affecting the outlook for almost all technology-related stocks in the US markets.

Nvidia has been acting as a proxy for the potential of AI and quantum computing, and witnessing triple-digit revenue and earnings growth from a company valued higher than the whole of the United Kingdom is staggering.

The implications for the broader market are significant. Money will likely flow aggressively into Nvidia following its impressive earnings report, which could propel both the Nasdaq and S&P 500 higher—both of which are already gapping up at the time of writing.

In addition, other technology and AI-related stocks, such as SMCI and SOUN, are also gapping up in pre-market trading in sympathy with Nvidia, which is not surprising given the market's positive response to Nvidia's performance.

Nasdaq

QQQ VRVP Daily Chart

The QQQ is showing strength in pre-market trading and had a solid performance on Wednesday. Initially, large caps attempted to break above $456 but faced resistance, leading the index to close nearly unchanged after a flurry of concerns about "persistent" inflation in the last two hours of the session, driven by a series of Fed speeches.

Despite the intraday sell-off prompted by inflation talks, we remained unconcerned. Chairman Powell has already outlined how the Fed plans to handle interest rates moving forward, which is the primary driver behind the recent performance of the equities markets over the past several weeks.

Demand appears to be robust, as indicated by the visible range volume profile (VRVP), with the majority of volume shown in blue above the point of control (POC), which remains firmly below the rising daily 10 and 20 exponential moving averages (EMAs).

Given this setup, we anticipate that any gap on open in today's session may initially be filled before the QQQ finds support and ultimately closes the day at all-time highs once again. Such behavior is commonly observed in a bull market, particularly following a gap up.

S&P Midcap 400

MDY VRVP Daily Chart

In yesterday's session, midcaps experienced increased selling pressure, causing the MDY to dip below its daily 10-day exponential moving average (EMA). However, it found support at the rising 20-EMA around $545, with evident demand emerging to defend this level.

The positioning of midcaps presents an intriguing scenario. The divergence between the QQQ and MDY suggests that the recent rally is predominantly favoring technology-heavy large caps over other sectors.

While this divergence isn't cause for significant concern, as the bullish thesis remains intact, it would be reassuring to see the MDY swiftly reclaim its 10-EMA and surpass the $551 mark in the coming sessions. Failure to do so could raise concerns.

However, a recovery is more likely than a continued sell-off, largely due to the supportive behavior of the Nasdaq, which often acts as a catalyst to lift other indices higher.

Russell 2000

IWM VRVP Daily Chart

The small caps are showing resilience, despite experiencing a dip towards the end of yesterday's session. The IWM swiftly found support at the point of control (POC) around $205, managing to reclaim the daily 10-EMA it had briefly lost intraday and closing above it as the session concluded. Notably, there's a discernible declining level of resistance that has rejected the IWM six times.

We anticipate a retest of $208 in today's session, particularly if Nvidia (hopefully) drives the overall market higher. This retest could potentially break the short-term consolidation of the IWM, leading to higher highs.

It's worth noting that the $209.50-$210 level has acted as a zone of rejection for the Russell 2000 for the past two years. It was expected to encounter some sideways movement at these prices, and we are optimistic to observe how the IWM will respond here. A breakthrough above this zone would mark a historical achievement, offering significant profitability for growth-focused swing traders.

DAILY FOCUS
Obviously Buying Nvidia

Today's game plan should be quite clear. Our top priority, by far, is to maximize (controlled) long exposure in Nvidia during its EP (episodic pivot). We will be aiming to enter either directly in NVDA or through a 2x or 3x leveraged ETF, to benefit from a higher average daily range (ADR).

While you may also be eagerly awaiting the market's opening to join the action, remember that risk management should always come first. Only buy within your predetermined parameters. This means ensuring that the trade is actually valid and that the EP sees follow-through. This is why we opt for the 5-minute opening range high (ORH) instead of the 1-minute.

WATCHLIST
Don’t Forget This

ROOT: Root, Inc

ROOT Daily Chart

  • AWhile NVDA will likely dominate our attention today, it's crucial not to overlook ROOT.

  • ROOT stands out with its robust fundamental growth and remarkable momentum, persisting within its VCP (volatility contraction pattern) as volume noticeably diminishes.

  • If the market trends upward today, there's a strong likelihood that ROOT will follow suit and break higher.

  • Given its history of a 300% surge in its last breakout, the anticipation surrounding ROOT's behavior is understandable.

  • A break above $65 will trigger a long position for us with stop at the low of the day.

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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