Chip Stock Picks Up Bear Note Ahead of Earnings

Nvidia will report earnings after the close on Thursday, Aug. 15

by Patrick Martin

Published on Aug 13, 2019 at 9:57 AM

The shares of Nvidia Corporation (NASDAQ:NVDA) are down 0.8% to trade at $150.19 this morning, after RBC cut its price target on the chip name to $190 from $200. The bear note comes as Nvidia prepares for its turn in the earnings confessional, set for after the close on Thursday, Aug. 15. 

Looking at Nvidia's earnings history, the stock has closed higher the day after earnings in just three of the past eight quarters. NVDA suffered a one-day, 18.8% plunge after earnings in November, and a 4.9% drop this time last year. Over the past two years, the shares have swung an average of 5.9% the day after earnings, regardless of direction. This time around, the options market is pricing in a much larger 12% swing for Friday's trading.

Nvidia stock was rejected around the $180 level back in late July, and has already shed 10.2% in August. What's more, the security's 50-day and 200-day moving averages are headed for a "death cross" -- typically seen as a precursor to more bearish price action.

For an equity that's shed 40.5% year-over-year, analysts sure remain committed. Of the 28 brokerages covering NVDA, 19 rate it a "buy" or better, while the consensus 12-month price target of $182.07 is a 20% premium to last night's closing perch at $151.45. 

Options traders have focused on calls lately. At the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the security's 10-day call/put volume ratio of 1.93 indicates calls have outnumbered puts by a nearly 2-to-1 ratio in the last two weeks.

Regardless of direction, NVDA has certainly been an attractive target for those buying premium during the past year, in the sense that it's made bigger moves than what the options market was pricing in. This is according to the security's elevated Schaeffer's Volatility Scorecard (SVS) reading of 91 out of a possible 100.

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