Dropping by for earnings

●NVDA scheduled to release earnings after the closing bell

●Chipmakers were a big part of tech selloff, but are currently holding lows

●NVDA has pattern of short-term post-earnings bullishness


If it feels like you’ve been hearing a lot about semiconductor stocks lately, you have. With the tech sector leading the market lower during the most recent downturn, there’s been a great deal of attention paid to one of its most conspicuous industries—chipmakers, which have taken the brunt of much of the selling.

Last month, the Semiconductor Index (SOX) dropped to its lowest point since September 2017 before bouncing with the rest of the market, then pulling back again to form a higher swing low on Monday:

Semiconductor Index (SOX), 12/18/16–11/14/18. Semiconductor Index (SOX) price chart, Holding the lows.

Source: OptionsHouse

Establishing a higher low is a good start, and the SOX will likely need to build on it—soon—to convince investors that a return to long-term bullishness is in the works. Traders, on the other hand, have more immediate concerns.

Nvidia (NVDA), which made a name for itself producing semiconductors for the gaming industry, has built on its core strength through the happy coincidence that the blossoming world of artificial intelligence (AI) uses the same type of chip.

The stock quadrupled over the two years leading up to its all-time high near $293 at the beginning of October, but as of yesterday, the stock was still down more than 30% from that peak:

Nvidia (NVDA), 9/4/18–11/14/18. Nvidia (NVDA) price chart. Poised for earnings.

Source: OptionsHouse

Recent positive press for the company hasn’t done much to buffer the selling. In mid-October, while warning of a broader correction in semiconductor stocks, Goldman Sachs added NVDA to its “conviction buy” list,1 while on Tuesday the company got an upgrade because of its strong positioning in the AI space.2  

And today after the close, NVDA will release its latest quarterly numbers. No one knows what they’ll be. What we do know is that Nvidia has a 31-quarter streak of beating its headline earnings number.3 That doesn’t mean all that much, since earnings announcements include all kinds of info that can offset an earnings beat, especially a downsized future performance outlook or a big revenue miss.

NVDA has rallied on earnings, dropped on earnings, and done a lot of nothing on earnings. But its performance after its past 31 announcements, dating back to November 2011, has a few key characteristics:

●Five days after earnings NVDA was higher 20 of 31 times (65%) and had an average gain of 4.5%.

●On earnings day (today), NVDA declined from the open to the close 18 of 31 times (58%) and had an average loss of -0.3%.

●On the day after earnings, NVDA closed higher 19 of 31 times (61% of the time) and had an average gain of 3.82%.

Bottom line, NVDA has tended to be a little weak on earnings day but rallied post-earnings, with the lion’s share of those gains coming the day after earnings (tomorrow, in this case). But here’s the other side of the coin:

●Of the 12 times NVDA closed lower the day after earnings, there were only three instances when the stock rebounded to trade higher after five days.

In other words, don’t look for an immediate rebound if the stock closes lower the day after it reports.

Whether, or how these tendencies tie into the larger semiconductor story remains to be seen, but that’s a matter for investors. Traders have the option of acting on short-term developments and letting the longer-term trend take care of itself.

Market Mover Update: Yesterday’s 2%-plus intraday crude oil bounce (off the 61.8% retracement level of the June 2017–October 2018 rally) faded a bit as the day wore on, with January WTI crude futures up closer to 1% late in the trading day.

Today’s numbers: Retail Sales (8:30 a.m.), Import and Export Prices (8:30 a.m.), Business Inventories (10 a.m.), EIA Natural Gas Report (10:30 a.m.), EIA Petroleum Status Report (11 a.m.)

Today’s earnings include: Energizer (ENR), Spire (SR), Wal-Mart (WMT), America's Car-Mart (CRMT), Applied Materials (AMAT), Nordstrom (JWN), NVIDIA (NVDA), Post (POST).


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1 CNBC.com. Goldman Sachs sees a correction coming for chipmakers but still likes Nvidia. 10/18/18.

2 Investors Business Daily. Nvidia, Xilinx Stocks Upgraded To Buy On Artificial Intelligence. 11/13/18.

3 StreetInsider.com. Nvidia (NVDA) Earnings. 11/14/18.