NVDL: Pain Awaits

seekingalpha09-05

D-Keine Before we get too far into this, leveraged ETFs are generally very risky financial products. I've covered a few of them previously for Seeking Alpha here, here, and here. The way these types ...

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I've covered a few of them previously for Seeking Alpha here, here, and here. The way these types ...</p>\n\n<a href=\"https://seekingalpha.com/article/4719236-nvdl-pain-awaits\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"GB00BDT5M118.USD","symbol_name":"天利环球扩展Alpha基金A Acc","start_time":0,"source_url":"https://seekingalpha.com/article/4719236-nvdl-pain-awaits","article_id":"2465525529","we_media_id":null,"thumbnails":["https://static.seekingalpha.com/cdn/s3/uploads/getty_images/155351397/image_155351397.jpg"],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2465525529","pubTimestamp":1725547900,"columns":[],"sourceInfo":{"source_id":"seekingalpha_fund","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"D-Keine Before we get too far into this, leveraged ETFs are generally very risky financial products. I've covered a few of them previously for Seeking Alpha here, here, and here. The way these types o","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"GB00BDT5M118.USD":"天利环球扩展Alpha基金A Acc","IE00BZ199S13.USD":"BNY MELLON MOBILITY INNOVATION \"B\" (USD) ACC","LU0061474960.USD":"天利环球焦点基金AU Acc","IE00BJLML261.HKD":"HSBC GLOBAL EQUITY INDEX \"HCH\" (HKD) ACC","BK4550":"红杉资本持仓","BK4505":"高瓴资本持仓","LU1914381329.SGD":"Allianz Best Styles Global Equity Cl ET Acc H2-SGD","IE00BKDWB100.SGD":"PINEBRIDGE US LARGE CAP RESEARCH ENHANCED \"A5H\" (SGDHDG) ACC","IE00BSNM7G36.USD":"NEUBERGER BERMAN SYSTEMATIC GLOBAL SUSTAINABLE VALUE \"A\" (USD) ACC","LU0234572021.USD":"高盛美国核心股票组合Acc","LU1435385759.SGD":"Natixis Loomis Sayles US Growth Equity RA SGD-H","BK4511":"特斯拉概念","SG9999015945.SGD":"LionGlobal Disruptive Innovation Fund A SGD","IE0004445015.USD":"JANUS HENDERSON BALANCED \"A2\" (USD) ACC","L":"洛斯公司","NVDL":"GraniteShares 2x Long NVDA Daily ETF","IE00BWXC8680.SGD":"PINEBRIDGE US LARGE CAP RESEARCH ENHANCED \"A5\" (SGD) ACC","FDN":"First Trust Dow Jones Internet I","LU1145028129.USD":"ALLIANZ INCOME AND GROWTH \"AQ\" (USD) INC","SG9999015986.USD":"LIONGLOBAL DISRUPTIVE INNOVATION \"I\" (USD) ACC","LU0466842654.USD":"HSBC ISLAMIC GLOBAL EQUITY INDEX \"A\" (USD) ACC","SG9999018857.SGD":"United Global Quality Growth Fd Cl Acc SGD-H","NVDS":"Tradr 1.5X Short NVDA Daily ETF","LU1852331112.SGD":"Blackrock World Technology Fund A2 SGD-H","SG9999014898.SGD":"United Global Quality Growth Fund Dis SGD","IE00BD6J9T35.USD":"NEUBERGER BERMAN NEXT GENERATION MOBILITY \"A\" (USD) ACC","NVDA":"英伟达","NVDU":"Direxion Daily NVDA Bull 2X Shares","LU0642271901.SGD":"Janus Henderson Horizon Global Technology Leaders A2 SGD-H","IE0034235188.USD":"PINEBRIDGE GLOBAL FOCUS EQUITY \"A\" (USD) ACC","IE0034235303.USD":"PINEBRIDGE US RESEARCH ENHANCED CORE EQUITY \"A\" (USD) ACC","IE00B19Z8W00.USD":"FTGF CLEARBRIDGE US LARGE CAP GROWTH \"A\" INC","NVDX":"T-REX 2X LONG NVIDIA DAILY TARGET ETF","LU0077335932.USD":"FIDELITY AMERICAN GROWTH \"A\" INC","BK4555":"新能源车","IE00B7KXQ091.USD":"Janus Henderson Balanced A Inc USD","LU1316542783.SGD":"Janus Henderson Horizon Global Technology Leaders A2 SGD","3NVD.UK":"LS 3X NVIDIA","LU0943347566.SGD":"安联收益及增长平衡基金AM H2-SGD","SG9999018865.SGD":"United Global Quality Growth Fd Cl Dist SGD-H","UBER":"优步","LU2357305700.SGD":"Allianz Global Artificial Intelligence ET H2-SGD","BK4543":"AI","LU0234570918.USD":"高盛全球核心股票组合Acc Close","IE0004445239.USD":"JANUS HENDERSON US FORTY \"A2\" (USD) ACC","LU1839511570.USD":"WELLS FARGO GLOBAL FACTOR ENHANCED EQUITY \"I\" (USD) ACC","LU1861559042.SGD":"日兴方舟颠覆性创新基金B SGD","2NVD.UK":"2X NVIDIA ETP","IE00BHPRN162.USD":"BNY MELLON BLOCKCHAIN INNOVATION \"B\" (USD) ACC"},"translate_title":"NVDL：痛苦在等待","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"UBER":1,"NVDL":1,"NVDS":1,"NVDU":1,"NVDA":0.7,"NVDX":0.7,"FDN":0.68,"3NVD.UK":0.6,"L":0.6,"2NVD.UK":0.6},"content_text":"D-Keine Before we get too far into this, leveraged ETFs are generally very risky financial products. I've covered a few of them previously for Seeking Alpha here, here, and here. The way these types of funds typically work is they rebalance daily to optimize returns. This works quite well when shareholders time entries at the beginning of a bullish run in the underlying stock or index. Such has indeed been the case with the GraniteShares 2x Long NVDA Daily ETF (NASDAQ:NVDL). In this article, we'll look at fund details, the impressive performance of NVDL since fund inception, and I'll make my case why I think the party is probably over. Fund Details As one has likely deduced already from the name of the fund, NVDL exists solely to produce twice the daily returns of Nvidia Corporation (NVDA) stock. For instance, on a day when NVDA shares rise by 5%, NVDL should move up by about 10%. The same is true on the way down. If NVDA goes down by 5%, NVDL should decline by 10%. Since the fund is rebalanced daily to optimize for double returns, NVDL's price should theoretically decay over time if NVDA experiences any sustained period of chop or decline. Thus, NVDL should really only be held when NVDA is in a strong uptrend and for short periods of time in a tactical strategy. Notably, NVDL is not the only product on the market that aims to produce 2x returns of NVDA stock. Other funds offering the same strategy include the Direxion Daily NVDA Bull 2x Shares (NVDU) and the T-Rex 2x Long NVIDIA Daily Target ETF (NVDX):   Fund Information NVDL NVDU NVDX   Net Expense Ratio 1.15% 1.04% 1.05%   AUM $5 billion $449 million $504 million   Inception 12/13/22 9/12/23 10/18/23   Share Price 9/3/24         Click to enlarge Source: Seeking Alpha. Due to its 1.15% expense ratio, NVDL is slightly pricier for those who hold for an entire year (I don't recommend holding leveraged ETFs this long). Though when we're talking about a fund that doubles the daily return of NVDA, I suspect a few bps likely doesn't matter all that much to shareholders. Perhaps what does matter more is the track record. GraniteShares' fund is by far the largest at $5 billion assets under management (“AUM”) and was launched before each of the other two funds. Performance Comparing each of the funds over a year to date basis perhaps gives the most fair picture because neither NVDU nor NVDX existed a year ago: YTD Total Return (Seeking Alpha) Here we see three funds that have all produced terrific year to date gains, though the total returns are actually quite different. NVDL is right in the middle at 207% year to date, while NVDU is well under that at 167% and NVDX is in the lead at 237%. Compared to NVDA, only NVDX has delivered on a true 2x goal since the beginning of 2024, though NVDL is relatively close. Again, NVDL has been around longer than the other two funds, and so looking at the fund's total performance may be helpful: Data by YCharts Since the fund's inception near the end of 2022, the total return for Day 1 shareholders has been over 1,100%. This is against NVDA's 500% total return over the same period of time. Thus, NVDL has actually achieved more than double the 2x daily goal of the fund over the last 20 months. In my experience both covering and utilizing these types of funds for trading, this is not a typical story, and it speaks to the intensity of the NVDA bull run over the last couple of years. It's been incredibly impressive, to say the least. However, I believe that this has generally been an outlier in the world of 2x leveraged ETFs, and it's likely going to come to an end. The Case Against NVDA I'll get ahead of the disclosure at the bottom of the page to be as transparent as possible. I have a synthetic short position on NVDA through a long position in the Tradr 1.25X Short NVDA Daily ETF (NVDS). If NVDA goes down, I will make money. I've taken this position for several reasons that include but are not limited to the following;  Sentiment signals Technical analysis Company valuation.  1: Signals We'll start first with the sentiment signals. Regarding small sample sizes and anecdotal evidence as justification for a broader viewpoint, I'm just seeing too much exuberance from NVDA bulls. We could start with the well-documented moment earlier this summer when Nvidia CEO Jensen Huang autographed a women's undergarment at a technology conference. This is the type of thing typically seen from entertainment industry celebrities rather than technology company CEOs. More recently, the company's latest earnings report had an unofficial watch party at a New York City bar. Which is again an activity that is highly unusual for Wall Street participants and more akin to something sports fans would do during a big game or event. Perhaps these signals could simply be viewed more as symptoms of high interest from retail investors. In the chart below, I'm showing the retail trader active percentage with vertical orange lines indicating earnings reports. It's very common to see spikes in retail trader activity immediately following earnings. However, the last two quarters have shown sustained growth in retail involvement. NVDA Retail Traders (TrendSpider) In the second half of 2023, retail trader activity percentage was rarely above 6% during most sessions. Since the beginning of March, retail trader percentage has been below 6% during just 4 sessions. In fact, retail trader activity percentage has not been below 10% since late-July. The point should be clear here; retail is in this trade in a big way. In my view, this is a signal that we're near the cycle top if we haven't made it already. Technical Analysis I make no assertions that I'm an expert technical analyst by any stretch of the imagination. When I use TA, I try to keep it simple and utilize things like moving averages over long periods of time. I see several potential warnings signs with this daily NVDA chart:   NVDA Daily (TrendSpider) First, NVDA hasn't sniffed its 200-day simple moving average in well over a year and half. My base case is that we see NVDA test that level in the weeks ahead. That MA is shown via the green line in the chart above, and it is 17% below current levels as of article submission. This would imply a 34% decline in NVDL if the stock does indeed revisit that moving average. Perhaps coinciding with a possible 200-day MA test would be the early August low of $90 per share. It's certainly within the realm of possibility that the stock could look to that level for support. But there are additional issues. For instance, we now have two lower highs from pullbacks going back to mid-June, indicating a more significant topping pattern. And there is an enormous gap that has still not been filled from May 2023. There is no rule that says all gaps must be filled. But given how overvalued this stock is, I don't think it can be completely ruled out. Company Valuation Data by YCharts Nvidia is currently trading at 21x forward sales. This is a 650% premium to the info tech sector median. In fairness, these P/S ratios are a testament to how stellar the company's gross margin has been in the race to scale AI compute. But even switching to P/E multiples, NVDA can't reasonably be called “cheap.” Data by YCharts At 38x forward earnings, NVDA trades at a 40% premium to the info tech sector median and is the second most overvalued company in the Magnificent Seven based on that metric after only Tesla (TSLA). Other considerations   NVDA Insiders (InsiderAlerts.co) There are additional concerns pertaining to NVDA as well. We've seen insiders selling stock at an accelerated rate recently. Since mid-June, Jensen Huang has sold 4.8 million shares of NVDA for $580 million. To be clear, Huang is still a major shareholder in the company and these sales represent a minimal portion of his total holdings. Year to date, insiders have sold $1.5 billion in company stock, with the majority of those sales coming in the past 3 months. We've also learned of a subpoena as the United States DOJ looks into possible antitrust law violations by the company. Please review the risks of leveraged ETFs as explained in the linked SEC bulletin before placing any trades in NVDL. These risks include extreme volatility, time and volatility decay, and the real possibility of losing all of your investment. The normal risks can be exaggerated with single-stock ETFs such as NVDL. Only experienced traders who fully understand the risks should trade them. This article further explains the important risks of such ETFs with examples. Closing Thoughts NVDA has been on a truly breathtaking rise over the last two years. Given that rise, it is perhaps unsurprising that retail has found its way to the stock to such a large degree. But there is a fairly obvious warning sign there. Readers are no doubt familiar with the concept of fading rallies when the cabbies start giving stock tips. Perhaps in this era, that sell signal comes from the Uber (UBER) driver. Or maybe earnings report watch parties work just as well. Beyond sentiment, I see red flags on the chart. I see red flags from insider sales. I see a red flag from the DOJ. And I see a red flag from a 2x leveraged ETF that hasn't yet punished people for holding shares since 2022.  Things that have a beginning have an end. I'm certainly not saying to short NVDA or to even sell NVDA for that matter. But I do suspect that the company's growth has been priced in for now, and NVDL is unlikely to continue on this meteoric rise. NVDL is a sell.","kind":"highlight","is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"-1","news_tag":"","news_rank":0,"symbols":[],"gpt_button":0},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.3","shortVersion":"4.29.3","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2465525529"}