Nvidia (NVDA) announced its highly anticipated earnings on Wednesday. It didn’t disappoint.
Revenue and earnings per share (EPS) were all above market forecasts. And according to the company, things are looking even brighter for the next quarter. It expects even more growth ahead.
For a market in risk-off mode over fears of the AI bubble bursting, those results offered a much-needed shot in the arm.
Some are now calling for the next leg in the AI rally to take off. But I recommend tempering expectations. Despite all the hoopla over another impressive quarter from NVDA, investor sentiment has changed over the past weeks.
And there will be plenty more swings ahead…
Ever since the market bottomed in April, stocks have been heading in one direction. There has barely been a down week as the major indexes made a steady succession of new highs.
But that changed last month when indexes reversed.
Coming into Nvidia’s results, the S&P 500 and Nasdaq Composite were down 4% and 6%, respectively, off their October 29 all-time highs.
Behind those numbers, tech stocks have been feeling the heat. Meta Platforms (META) is now down around 25% from its highs, and Microsoft (MSFT) is looking weak. And many smaller AI-themed stocks have suffered significant falls too.
When stocks suffer double-digit falls, they don’t miraculously recoup those losses.
Despite the short-term sugar hit of NVDA’s earnings, investors are getting choosier about which stocks to pick. They aren’t jumping on any stock that fits the AI theme anymore.
The good news for us is that indexes aren’t just going one way anymore. We’re heading back into a trader’s market with plenty of swings. We’ll be able to put our mean reversion strategy to use throughout the rest of this year and into the next.
And we’ve also got another advantage up our sleeve. And it relates to the big institutional players…
To match the performance of the major indexes, professional fund managers must own the Big Tech stocks. If not, they risk their fund underperforming their peers whenever the tech powerhouses make another run higher.
But if those stocks take another leg down, it will dramatically affect performance. Recall that NVDA alone represents almost 10% of the Nasdaq-100, with the whole Mag 7 representing a combined 42%.
Whichever way you slice it, those managers are pinned to the success of these stocks. And that’s where private traders have an advantage over the big institutions.
Fund managers need to remain fully invested (or close to it) to match the indexes.
But private traders have the luxury of flexibility. When it suits, we can sit on the sidelines. Then we can patiently wait for the right setup and jump on a trade. We are only beholden to ourselves… which leaves us a lot freer to trade as we will.
If stocks become overbought (or oversold), we can put our mean reversion strategy into action. And because we are using options, we can tightly manage our risk.
And if no strong setup comes our way, we simply wait until one does.
The whole AI story hasn’t finished playing out. And you can bet that there will be plenty of swings ahead.
But rather than being fully invested, we can protect our capital… and be ready to jump onto the numerous opportunities that a trader’s market presents.
This year, my One Ticker Trader subscribers have managed an 85% win rate. So if you’d like to see more about my strategy for maneuvering in markets like these, I’d recommend checking out my recent briefing.
There, I show how we can beat other investors’ returns by 7x… 10x… and even 17x. To watch, simply go right here to check it out.
Happy Trading,
Larry Benedict
Editor, Trading With Larry Benedict
Reading Trading With Larry Benedict will allow you to take a look into the mind of one of the market’s greatest traders. You’ll be able to recognize and take advantage of trends in the market in no time.
