Where there’s risk, there’s also reward. We’re all familiar with that saying. But when it comes to Nvidia (NASDAQ:NVDA) stock and no discernible trading edge in front of this week’s earnings report, it’s time to stay positioned on the sidelines. Let me explain.
Nvidia stock reports its Q1 results Thursday night after the market close. And if history is any sort of predictor, NVDA is likely to see an earning reaction worthy of more than a few sensationalist headlines. But just where Wall Street’s buy and sell decisions take NVDA shares is anybody’s guess.
Off the price chart it’s no secret Nvidia stock has been under pressure, albeit with shares up around 25% this year.
Some of Nvidia’s woes stem from still-existing inventory problems tied to 2018’s bullish cryptocurrency misstep. Analysts are bracing for large declines of approximately 30% in sales and roughly a 60% drop in NVDA stock earnings from the year-ago period, associated in large part to the downdraft in that market.
Nvidia stock also has substantial risks associated with an escalating trade war between China and the U.S. The company’s gaming and GPU business is its largest revenue generator with sales of around 43%. But it’s possible according to RBC’s Mitch Steves, Nvidia could lose access to the Chinese market entirely.
According to Mr. Steves, Nvidia’s GPU products could be determined to be too sensitive to the U.S or taxed so heavily as to cause a major disruption in demand from the world’s second largest economy. What’s more, reports have already been coming out that Nvidia has already been discounting its latest RTX graphics cards in response to tepid buying interest.
So, does the current situation make Nvidia stock a short? Not necessarily.
As InvestorPlace’s Vince Martin reminded readers last week, NVDA is a second-half story. Deeper dives into data center and artificial intelligence are two growth areas which could help lift today’s bearish albatrosses hanging over NVDA. And if some bullish clarity does appear on the horizon following earnings, bears in Nvidia stock will need to take cover. For now though, playing NVDA’s report in front of earnings looks like a coin toss.
Nvidia Stock Daily Chart
In early trade Monday, shares of NVDA are lower and testing angular uptrend support dating back to late December’s corrective bottom. Combined with Nvidia stock’s stochastics in oversold territory, shares approaching the 50% retracement level and so much trade war uncertainty in the air — bulls do have contrarian-based support for taking on a long position.
At the same time though, conditions could get a good deal uglier in a jiffy for Nvidia stock.
Following Nvidia’s massive two-plus year bull-run from 2016 into 2018, today’s uptrend could simply be an elongated bear flag beneath 200-day simple moving average resistance. As much, while earnings could clear the air for bulls, it’s also easy to appreciate how bears could reassert their presence.
Bottom, top and squiggly price lines, Nvidia stock is making the best case for investors to allow shares to settle down technically following earnings before long or short decisions from any still-to-be-determined continuation patterns on the price chart are pursued.
Disclosure: Investment accounts under Christopher Tyler’s management do not currently own positions in any of the securities mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.