It was another quiet day for the stock market, with everyone holding their breath for Nvidia's (NASDAQ:NVDA) results coming out today after the close.
Where would this market be without Nvidia? Likely much lower. The IV for $130 calls for this week’s expiration is now up to 125%, and that figure could rise even more by the time the market closes today at 4 PM ET.
I feel that a rally for this stock won’t come easily, considering the amount of implied volatility set to roll off and how heavily positioned the stock is for a bullish outcome.
There is a good chance, the extreme levels of bullish may actually be bearish as call premiums burn.
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Additionally, the market has become accustomed to Nvidia delivering $2 billion beat-and-raise quarters. Analysts are already expecting $31.85 billion in revenue for the November quarter—so can Nvidia once again guide 8% above the street and hit $34.4 billion?
Also notable is how analysts consistently raise their sales estimates above the company’s guidance. For the February quarter, Nvidia guided to $16 billion, analysts estimated $16.09 billion, and the company delivered $18.1 billion.
In May, guidance was set at $24 billion; analysts expected $24.7 billion, and Nvidia reported $26.0 billion. This quarter, with guidance at $28 billion, estimates have climbed to $28.9 billion.
So, if Nvidia reports $30 billion in sales, the beat shrinks to $1 billion instead of $2 billion.
Typically, Nvidia guides the next quarter to $4 billion above the previous one. For example, the company guided $20 billion for the February quarter, then $24 billion for May, and $28 billion for August.
Analysts have now estimated $31.9 billion for the November quarter, effectively following the pattern. However, if Nvidia only guides to $32 billion, it might not be enough, as this has already been priced in.
The company might need to break the mold and guide $6 billion above its previous quarter’s guidance to reach $34 billion.
A $1 billion beat on the top line paired with an inline guide could trigger a less-than-favorable reaction in a market where the stock is trading at 21 times its next twelve months’ revenue estimates.
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Also, short sale volume has been on the rise in recent days
Anyway, the yield curve continues to steepen, now trading at -7bps.
Meanwhile, the US dollar continues to weaken versus the Japanese yen, with the USD/JPY now testing that big support level at 143. A break of technical support at $143 sets up a potential decline back to the August 5 lows.