PAY ATTENTION: A MAJOR RISK EVENT IS AHEAD – NVIDIA EARNINGS

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By Nigam Arora & Dr. Natasha Arora

To gain an edge, this is what you need to know today.

Nvidia Earnings Ahead

Please click here for a chart of Nvidia stock (NVDA).

Note the following:

  • The Morning Capsule is about the big picture, not an individual stock.  The chart of NVDA stock is being used to illustrate the point.
  • NVDA is the best performing large stock as NVDA is at the center of the AI revolution.
  • The chart shows a breakout on January 8, 2024.
  • The chart shows the very steep trendline since the breakout.
  • The chart shows the buying frenzy in NVDA stock.
  • The chart shows that since the breakout, NVDA stock has moved up 45.2% in a very short time.
  • NVDA is in the ZYX Buy Model Portfolio.  The chart shows the power of buy zones.  The chart shows the average buy price for NVDA is $125.51.  NVDA is trading at $731.52 as of this writing in the premarket. This represents a profit of 483%.
  • The move up in the stock market in 2024 is the result of two events.
    • AI frenzy led by NVDA stock
    • Momo gurus’ narrative of six rate cuts in 2024, starting in March.  The Arora Report repeatedly cautioned you against believing in the momo gurus’ narrative of interest rate cuts.  Now it is clear that momo gurus have been wrong on their interest rate cut projections.
  • The Arora Report call on AI has been very positive.  Our call originally was that a fortune was to be made over seven years.  That call was made over a year ago.  So far, that call has been spot on.
  • When one stock, such as NVDA, becomes responsible for a large part of the move of the entire stock market and for the extreme positive sentiment, it is important to pay attention to the earnings of the stock.
  • NVDA reports earnings on February 21.  The consensus for NVDA earnings is $4.56.  The consensus for revenue is $20.32B.
  • Less informed investors do not understand that stocks do not move based on published consensus earnings and revenue estimates.  Stocks move based on whisper numbers.  Whisper numbers are the numbers that analysts share privately, only with their best clients.  The whisper numbers for NVDA are at $5 for earnings and $22B for revenue.  
  • Sentiment in NVDA is at extreme positive. Here is the most often asked question, “I don’t own NVDA.  Should I buy it now?” Typically, investors answer the question themselves. They cannot stand that they do not own NVDA, so they jump in with both feet to buy it now.  This is the same pattern that the same investors showed when TSLA was trading at a much higher price.
  • NVDA earnings will determine the near term course of the stock market. 
  • This morning there is aggressive buying in junk stocks and penny stocks.
  • As an actionable item, the sum total of the foregoing is in the protection band, which strikes the optimum balance between various crosscurrents.   Please scroll down to see the protection band.
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Magnificent Seven Money Flows

In the early trade, money flows are positive in Amazon (AMZN), Alphabet (GOOG), Meta (META), Nvidia (NVDA), Microsoft (MSFT), and Tesla (TSLA).

In the early trade, money flows are neutral in Apple (AAPL).

In the early trade, money flows are positive in S&P 500 ETF (SPY) and Nasdaq 100 ETF (QQQ).

Momo Crowd And Smart Money In Stocks

The momo crowd is *** (To see the locked content, please take a 30 day free trial) stocks in the early trade.  Smart money is *** in the early trade.

Gold

The momo crowd is *** gold in the early trade.  Smart money is *** in the early trade.

For longer-term, please see gold and silver ratings.

Oil

API crude inventories came at a build of 8.52M barrels vs. a consensus of a build of 2.6M barrels.

The momo crowd is *** oil in the early trade.  Smart money is *** in the early trade.

For longer-term, please see oil ratings.

Bitcoin

Positive sentiment from aggressive buying in penny stocks and junk tech stocks is shifting to bitcoin (BTC.USD), moving it higher.  Bitcoin futures have just crossed $52,000.

Bitcoin miners are seeing aggressive buying.

Markets

Our very, very short-term early stock market indicator is ***.  This indicator, with a great track record, is popular among long term investors to stay in tune with the market and among short term traders to independently undertake quick trades.

Interest rates are ticking down, and bonds are ticking up.

The dollar is weaker.

Trading futures is not recommended for most investors. The purpose of providing this information is to give an indication of the premarket activity that usually guides the activity when the market opens.

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Gold futures are at $2003, silver futures are at $22.22, and oil futures are at $78.30.

S&P 500 futures are trading at 4998  as of this writing.  S&P 500 futures resistance levels are 5020, 5210, and 5400 : support levels are 4918, 4852, and 4826.

DJIA futures are up 107 points.

Protection Band And What To Do Now

It is important for investors to look ahead and not in the rearview mirror.

Consider continuing to hold good, very long term, existing positions. Based on individual risk preference, consider holding *** in cash or Treasury bills or allocated to short-term tactical trades; and short to medium-term hedges of ***, and short term hedges of ***. This is a good way to protect yourself and participate in the upside at the same time.

You can determine your protection bands by adding cash to hedges.  The high band of the protection is appropriate for those who are older or conservative. The low band of the protection is appropriate for those who are younger or aggressive.  If you do not hedge, the total cash level should be more than stated above but significantly less than cash plus hedges.

It is worth reminding that you cannot take advantage of new upcoming opportunities if you are not holding enough cash.  When adjusting hedge levels, consider adjusting partial stop quantities for stock positions (non ETF); consider using wider stops on remaining quantities and also allowing more room for high beta stocks.  High beta stocks are the ones that move more than the market.

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Traditional 60/40 Portfolio

Probability based risk reward adjusted for inflation does not favor long duration strategic bond allocation at this time.

Those who want to stick to traditional 60% allocation to stocks and 40% to bonds may consider focusing on only high quality bonds and bonds of seven year duration or less.  Those willing to bring sophistication to their investing may consider using bond ETFs as tactical positions and not strategic positions at this time.

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This post was just published on ZYX Buy Change Alert.

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Nigam Arora

Nigam Arora

Nigam Arora is known for his accurate stock market calls. Nigam is a distinguished master of the macro. He is a popular columnist with over 100 million page views, an engineer, and nuclear physicist by background. Nigam has founded two Inc. 500 fastest growing companies and has been involved in over 50 entrepreneurial ventures. He is the developer of Theory ZYX of Successful Change Management and is the author of the book on Theory ZYX, as well as the developer of the ZYX Change Method for Investing.

Dr. Natasha Arora

Dr. Natasha Arora

Dr. Natasha Arora has significant expertise in investment analysis especially biotech, healthcare, and technology. Natasha is a graduate of Harvard Medical School followed by a postdoc at MIT. She has published several peer reviewed research papers in top science journals.

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