NVIDIA Corporation's (NVDA) Momentum Shows No Signs of Slowing

NVIDIA Corporation (NVDA) has outpaced all other SPX stocks, and shows few signs of slowing down

Dec 7, 2016 at 2:49 PM
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NVIDIA Corporation (NASDAQ:NVDA) has been the best stock on the S&P 500 Index (SPX) in 2016, up 185.5% at $94.10. In fact, the shares are just a chip-shot from their late-November record high at $95.25. As if NVDA hasn't stood out enough, the virtualization concern is also the only stock to find a place on a pair of "best" studies we've conducted recently.

First, NVIDIA has been one of the top SPX stocks since the election, according to Schaeffer's Quantitative Analyst Chris Prybal. The shares have soared an astounding 32% during that roughly one-month time span. Second, in a more forward-looking analysis, NVDA came up as one of the 25 best SPX stocks for December, per Schaeffer's Senior Quantitative Analyst Rocky White. Looking back 10 years, the stock has been positive during the month eight times, with an average gain of 6.6%. So far this December, the shares are up 2.7%.

This bullish seasonal trend isn't the only factor suggesting NVDA may have more room to run. The stock is also well-positioned to benefit from a capitulation among a surprising number of skeptics on Wall Street.

Assuming the shares stay hot, they're primed to capitalize on a well-deserved round of upgrades. While a majority of analysts rate NVDA a "buy" or better, 10 still maintain a "hold" or a "strong sell" opinion. Not to mention, with a consensus 12-month price target of $85.02 perched below current levels, the stock seems due for price-target hikes.

On top of that, there's plenty of short interest on the outperformer. By the numbers, 68.5 million shares are sold short, or 13.4% of the stock's float. With the majority of these positions likely under water, a rush to cover could unleash a fresh wave of buying power on NVIDIA.

Plus, on the options front, put open interest in the front three-months' series nearly doubles call open interest. This, according to NVDA's Schaeffer's put/call open interest ratio (SOIR) of 1.92 -- in the put-skewed 97th percentile of its annual range. If these put traders are indeed bears -- rather than, say, shareholders protecting paper profits -- a mass exodus could further fan the flame.

Speaking of short-term options, now is an opportune time to purchase premium, regardless of the motive. NVIDIA Corporation's (NASDAQ:NVDA) Schaeffer's Volatility Index (SVI) of 37% ranks in the low 16th annual percentile, suggesting near-term options are relatively inexpensive at the moment. Plus, the stock's Schaeffer's Volatility Scorecard (SVS) of 97 indicates NVDA has tended to make larger moves over the past 12 months than the options market has priced in.

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