Nvidia’s Stock Price and the Art of Active Management
Investing in the stock market can be a lot like predicting the weather – it’s always changing. This constant fluctuation can lead to losses for retail investors, especially when they go all-in or all-out, overexposing themselves to sudden market shifts. That’s where active management comes in.
At Tech Insider Network, we take a unique approach by actively managing our investments. This strategy has helped us outperform the market consistently over four audit periods. We believe in adapting to the ever-changing market conditions, whether they’re good or bad, rather than being overly exposed in one direction or another.
A prime example of our approach is our largest position in Nvidia Corporation (NASDAQ:NVDA). As the allocation grew beyond 10%, we decided to take some gains. Currently, Nvidia represents 17% of our portfolio. Back in May and June, we made it clear that we were not buying Nvidia at that time. However, just like the weather, things have changed. Recently, our firm made a small tranche purchase of Nvidia stock at $410 with a stop-loss strategy in place. If the stock sells off, we will close this 2% tranche while protecting our original 15% position.
Throughout 2022, we raised cash, and Nvidia was always on our radar as a primary target for deploying some of that capital. We patiently waited for our analysis to signal a bottom, and on October 13th, we made a move. We sent a real-time trade notification to our members, informing them of our purchase below $200. This was just one of nine alerts we issued to buy Nvidia at opportune price points.
However, since February 2023, we’ve been taking gains systematically based on technical and macro warnings. Despite realizing significant wins while raising cash, Nvidia still remains at the top of our portfolio in 2023.
Before Nvidia’s recent earnings report, we anticipated a sizable pullback, which we believed would create better long-term entry points. While we still believe lower levels will materialize in due time, the earnings report has expedited market expectations regarding Nvidia’s role in artificial intelligence (AI). This is now reflected in the price action. For years, we have touted Nvidia as an AI leader, aligning our allocation with this belief. However, accurately predicting when the market would fully price in this thesis is impossible, since timing is not crucial when holding a large long-term position.
In terms of price analysis, we work with probabilities and adapt when the market changes. The key factor for Nvidia now is the significant gap resulting from their earnings report. This gap can be interpreted as either a breakaway gap or an exhaustion gap. If it is a breakaway gap, marked by our red count, then it represents the halfway point in this upward push. On the other hand, if the price breaks below $340, possibly due to some kind of event, then the gap is an exhaustion gap, indicating a larger top, as indicated by our blue count.
The $405 – $395 region is expected to offer strong support for the red count scenario. We added back to our position in anticipation of a ~38% upward move. In terms of risk management, our stop-loss level for this trade will be a break below the critical support region at $340, about 14% lower than our entry point.
Unlike many market observers, we do not view AI as a bubble, nor do we believe the valuations of companies in this space are stretched, as commonly perceived. However, we do have concerns about potential events that could impact Nvidia’s performance. These include geopolitical tensions leading to a ban on selling Nvidia’s chips to China, which our expert Beth discussed in May with Bloomberg Asia. Additionally, the inevitable recession, which may be priced into equities in Q4/Q1, could be accelerated by an unforeseen event.
Considering these risks, we approach our buying strategies with an exit plan in mind. We anticipate a recession is more likely than not for the US economy, based on current economic data. However, our analysis suggests that AI leadership will continue to thrive at least until the end of this year. Therefore, we are positioning our portfolio accordingly, acknowledging the possibility of a sooner-than-expected top-out.
In conclusion, navigating the stock market requires a dynamic approach, especially when it comes to high-growth sectors like AI. At Tech Insider Network, we actively manage our investments, taking gains when necessary and making strategic purchases when the conditions are right. While we remain cautious, we believe the potential for AI growth in Nvidia is substantial. As the market evolves, we will adapt our strategy, always keeping an eye on potential risks and opportunities.
Note: This article is for informational purposes only and should not be taken as financial advice. It is important to conduct thorough research and consult with a professional financial advisor before making any investment decisions.
