NVDA in Buy Zone before Earnings surge?
I think it is plain to see that this week’s US market rally will hinge squarely on one stock - Nvidia, the current #1 semiconductor company in the world, due to its superior position in the Artificial Intelligence (AI) race.
Nvidia is due to report its quarterly earnings (Q1 2025) on Wed, 22 May 2024 after market closing.
Forecasts. (Market expectations):
- Revenue: $22.9 billion. This would be an astounding +235% YoY.
- Earnings per share: $5.15 per share. This would be a massive gain of +425% YoY.
- These are heady numbers heading towards d-day, Wednesday.
For FY 2025:
- Revenue: $104.37 billion. This would be a +71.3% gain.
- Earnings per share (EPS): $23.10 per share. A very very commendable +78% gain.
Factors for optimistic analysis:
- Nvidia paints a compelling picture down the road when it commences shipments of its latest product — the Grace Blackwell product (GB200).
This Week (May 20-24).
The AI chip leader's results and guidance will have a huge impact on other artificial intelligence plays — which goes far beyond actual AI companies.
Nvidia (this week) will have big repercussions for the broader market rally.
Just so you know, Nvidia stock broke out into a buy zone last week.
Buy Zone?
Learning a new language is tough.
Learning how to invest and read stock charts, for retail investor (like me), certainly requires a new vocabulary.
Terminology used by investors that are related:
- Extended.
- Buy range.
- Shakeout.
Example: Using Nvidia’s breakout in the fall of 2017 will show why these terms are important.
Buy range / Buy zone (definition): It is a 5% area above a proper entry point.
It is the zone in which investors can (a) buy into or (b) add to positions in stocks.
Objective: The goal, whether the pattern is (1) a base or (2) a rebound off the 10-week moving average, is to buy as close to the actual buy point as possible.
Based on rule of thumb, more advanced investors will use the buy range as a rule when pyramiding into a position.
Summary of above:
- A stock within 5% of a buy point is said to be in its buy range.
- A stock that has moved >5% above an entry point is considered extended.
Why 5%?
- After a breakout, many of the best leading stocks have a tendency to (a) pull back and (b) test buy points or their 10-week moving averages.
- Marking a 5% cutoff allows these pullbacks to occur without triggering the automatic sell rule: when a stock falls 7% or 8% below Investor's entry price.
Definition of shakeout: A forced exit is called being "shaken out" of a stock.
- Buying within 5% of the buy point allows an investor to ride a normal post-breakout pullback, without being shaken out of the stock.
Nvidia -15 Sept 2017.
On 15 September, Nvidia came with its breakout from a flat base.
The stock scorched past the $174.66 buy point in a 5-week flat base, jumping more than +6% in huge trade. (see below)
Despite the huge gain, the stock ended that day within the buy range that ran through $183.39 (that is >5% above the $174.66 buy point).
Investors who missed that Friday breakout session could have come in on Monday and still bought.
But only for a limited time.
Assuming an investor waited too long and jumped into Nvidia later (still in Monday session), at $185. That's only +5.9% past the buy point.
Is there a big difference?
- The difference would become obvious as the stock declined over the next 5 sessions. (see above)
- An investor who bought Nvidia's breakout at the highest possible price within the buy range — $183.39 — would have ridden a temporary pullback of -7.2%.
- This is just shy of the absolute kill-level decline of -8%, that would've avoided the golden rule of investing.
- Investor could ride out the test.
- On the other hand, if the purchase price was $185, the low of the pullback on Sept. 25 (1) would have tipped over the -8% kill-level (shakeout time).
- Another point: Nvidia remained in buy range over the next nine or 10 sessions (2), giving investors plenty of time to pile in.
- When Nvidia next peaked in early October 2018 at $292, the stock has gained as much as +67%, allowing plenty of chances to take profits on the way up.
Lesson Learnt & My Viewpoints (mine only)
- Have to remind myself that any “stop loss” or shakeout for a purchased share would be -8%.
- When a stock is trending in upwards trajectory, it is perfectly “alright” to take profit, wait for a pullback and then buy in again based on the “new” buy range / buy zone.
- Apply the lesson just learnt, Nvidia’s buy zone price will be Tue, 14 May 2024 of $913.56.
- For week May 13-17, Nvidia peaked at $946.30 on Wednesday; +3.58% above buy zone price.
- On Friday, after a pullback Nvidia ended the week at $924.79, +1.23% above buy zone price.
What else In-store?
- On Tue, 14 May 2024 - $UBS Group AG(UBS)$ , Analyst Timothy Arcuri wrote that Nvidia could deliver April-quarter revenue "potentially as high as $26 billion.
- He offered an outlook for this quarter that's possibly in the $27 billion to $28 billion range.
- Analysts polled by FactSet expect $26.5 billion in revenue for the ongoing quarter.
- Arcuri has a “Buy” rating and $1,150 target price on Nvidia. WoW!
Nvidia or not, I will try to put into practice what I learnt and classify them under Lifelong Lessons.
- Do you think Nvidia will continue with its ascend after Wednesday ?
- Do you think you will put the Buy Zone rule into use, for your next purchase ?
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Disclaimer: Investing carries risk. This is not financial advice. The above content should not be regarded as an offer, recommendation, or solicitation on acquiring or disposing of any financial products, any associated discussions, comments, or posts by author or other users should not be considered as such either. It is solely for general information purpose only, which does not consider your own investment objectives, financial situations or needs. TTM assumes no responsibility or warranty for the accuracy and completeness of the information, investors should do their own research and may seek professional advice before investing.
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