NVDA beat by $0.04 yesterday evening and issued upbeat guidance. Now this morning they got an upgrade. But on the wires half an hour ago Merrill Lynch was out saying sell into this strength:
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Merrill Lynch says they were surprised by the strength of Nvidia's FQ4 results and FQ1 outlook. However, the firm believes we are just seeing another desktop product cycle. Fundamentally, they don't think the graphics business has changed, and history would tell us that the underlying problems of an industry with short product cycles continue to exist. For the next 6-12 months, they continue to prefer ATI (ATYT) on both valuation and strategy. Firm expects NVDA to trade up in the near term based on business momentum and market share gains, but also notes that the street tends to extrapolate near-term market share gains and overpay the stock at the beginning of a product cycle. On that basis, the firm advises investors to use this opportunity to sell into strength. Raising FY'06 earnings estimate to $1.30 from $1.00.
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Given the market environment, if I were trading NVDA, I would probably look to sell half the position. Then on the other half, place a stop just under the low of the day 10 minutes into the session.
Personally, I rarely trade within the first 10 minutes. So, I would watch it trade for 10 minutes. If it is trading higher than the opening price but less than the high of the day, I'd sell half the position immediately. If it is trading at the high of the day (and therefore higher than the opening price), I'd place a tight stop under the whole position at a price between the opening price and the current inside bid.
That's just the way I would approach it. There are other strategies, of course. But I agree with your concern that profits will deteriorate.
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