How Should You Approach Nvidia Stock Before Earnings?

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After a nice rally this year into the midfield line, Nvidia (NASDAQ:NVDA) stock is facing earnings this week. And with that, many investors are likely wondering what’s needed for a continuation of its rally. Let’s examine what’s happening to Nvidia stock both on and off the stock chart ahead of earnings.

How Should You Approach Nvidia Stock Before Earnings?
Source: michelmond / Shutterstock.com

This week semiconductor chip manufacturer NVDA will be one of the more well-watched Q3 corporate confessionals when it releases its results Thursday evening. In front of the report, analysts expect sales of $2.9 billion and profits per share of Nvidia stock of $1.57. Compared to the year-ago period the forecasts are prepared for declines of 8.8% and 14.7%, respectively.

The whisper number for NVDA earnings sets the bar higher at $1.64 per share. The increased confidence could be supported by Intel’s (NASDAQ:INTC) recent earnings beat, which calmed persistent worries of weak spending in the data center market. That’s important for NVDA stock as it accounts for more than 25% of the company’s total revenues, which are expected to top $12 billion for the calendar year.

Wall Street will also be looking for early gains from Nvidia’s GPU-enabled conversational AI platform, which Microsoft (NASDAQ:MSFT) has adopted, a solid uptick in the gaming market, demand for the company’s Tesla T4 GPU, as well as increasing Pro Visualization and automotive revenues. But what about competition from Advanced Micro Devices (NASDAQ:AMD) or China-related headwinds? There too, it’s a wait and see situation. But in the face of all of these unknowns, some investors aren’t waiting to show their support for Nvidia stock.

Within the analyst community, UBS reiterated a buy recommendation and raised its 12-month price target from $195 to $240 on Monday. The revised price target reflects a premium of 15% to today’s market price of NVDA stock. Behind the bullish note, UBS analyst Timothy Arcuri sees Nvidia profiting from gaming publishers adoption of its ray-tracing technology, as well as receiving a boost from 7-nanometer data center chips.

Nvidia Stock Monthly Chart

In late October, I wrote about NVDA. An overall bullish monthly chart was challenging Nvidia’s 50% retracement level within the stock’s 13-month long corrective base. As a parallel, it would be similar to a football team at the midfield line. Obviously, the advance in price was solid, but bulls still had their work cut out for them.

Along with an overbought stochastics indicator on the daily and weekly time frames, and a bullish-looking monthly set-up, the advice was for investors to wait for a likely pullback entry toward support. The goal was to allow some of the aggressive enthusiasm in NVDA’s shares to ease.

Over the past two weeks, NVDA stock obliged my technical wishes and traded into a described support area in-between $193.50 – $200. Now, with Nvidia shares sitting squarely where we left off, the daily chart’s stochastics have dipped strongly into neutral territory. This makes NVDA buy-worthy, when before, it was recently a more questionable investment.

Nvidia stock chart
Source: Charts by TradingView

On the upside I’d allow NVDA stock to rally in-between $260 – $300 before taking initial profits. The low of the range is where shares originally broke down from a rising wedge formation. The high is slightly above Nvidia’s all-time-highs and marks an appealing whole number.

For minimizing downside exposure, I’d look to exit below $188. The exit is a couple percent beneath the April pivot high and marginally below the 38% retracement level, which has been successfully overtaken. This stop-loss offers sufficient margin off and on the price chart to pull the plug on a long position in NVDA stock if necessary.

It’s also true earnings can be a crapshoot and elevated price volatility works both ways. With that in mind, I also suggest investors use Nvidia’s options market to hedge long stock risk or position with a bullish vertical spread. Alternatively, investors can take a different sort of gamble and wait until after the event to re-evaluate shares for purchase.

Disclosure: Investment accounts under Christopher Tyler’s management currently own positions in Advanced Micro Devices (AMD) and its derivatives, but no other 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.

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.


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