5/23 AM Action and notes: Outside of the pure AI trade, the market is looking a little tired to me. NVDA remains the class of the market and is pulling up other AI names. SMCI, ARM, MRVL, AVGO, AMD, QCOM all doing well. The overnight surprise is that SNOW reversed, presumably on competition commentary during the conference call? That's the guess and Cramer mentioned it as well this AM. But SNOW's quarter was a good one but they are clearly out of favor in the AI community as money rotates to where the action is.
SNOW's quarter was good and should buoy the stock a bit. They technically missed on some key numbers but guidance was excellent. The big issue is that they missed on eps and are still very expensive. They were up $10 AH and as I write this are now down $7. It's hard to see much of an upside catalyst that isn't earnings related so it may be dead money for a bit.
I had a chance to add to my NVDA position when the stock slipped to only being up $18 when earlier it was up $45 AH. I typed it in, had my finger on the trigger for an AH trade and decided, due to existing weight, I would just let it go. I could essentially day traded it for the AM gap and gone back to my original weighting but I've been doing that less of late as I de-risk some of my activities. It remains my largest holding in both IRAs.
Many of the morning gappers have sold off after open. With NVDA behind us, on could wonder where the upside catalyst is going to come from for this rally to continue. NVDA's 10:1 stock split will keep it in focus even as forward looking valuation is now in the 40s. Valuation crusaders who don't believe NVDA can keep rising will have more ammunition given the continuation of its upside trend.
Some combination of supply constraint, slowdown in purchase and, most importantly, competition as primary names seek to fab their own AI chips but it seems that is 4-6 quarters away before that start to have some impact. I doubt anyone really knows and it's not like Nvidia will cease development and engineering that could largely negate any catch-up made in that time. Time will tell.
As for myself, the split is very welcome news, especially as I will likely need to reduce the weight of the holding. It's getting heavy in the primary account and ungodly heavy in the Roth. But the 10:1 will make for a lot of shares in my account which can then be used for covered call writing. If you have a 100 shares of NVDA now, you can write 1 covered call and could be flat if called away. I wouldn't want to be flat NVDA personally. But those 100 shares will become 1,000 which now allows you to potentially trim your position by writing calls to collect premium and if they are called away, so be it. Your underlying position has increased, you've reduced your position and made money. With this strategy, churn would even be your friend as you continue to collect premiums and reduce your cost basis.
I'm looking for splits in SMCI and AVGO as well though I'm not overly excited about SMCI. AVGO is one of my favorites, the valuation is better than NVDA. I'm also looking for big things from ARM and, to a lesser degree, MRVL. I think ARM has significant potential.
QCOM's move has been exciting and my loss harvest of 2023 worked like a dream. My position was in a loss as QCOM dropped to $102. I doubled up on the position, waited for a month, then unloaded 1/2 the position (Higher cost shares via FIFO), retained the same number of original shares while resetting my cost to $102 and it has now more than doubled. This strategy is one I love to use for stocks carrying a loss I want to realize but don't want to be flat on.
The mag 7 trade is looking a bit spent to me. The AI trade is still working and volume continues to find the names. Looking at my extended watch list, here are some other notes for those of you following along that may be looking for a position trade or a hold.
As I type this the secondary AI names are going red. All eyes remain on King NVDA.
ADBE: I'm looking to double up this position from my entry right around this price. Was hoping for a broader dip and cheaper price. Still waiting.
AEP/NGG: The utility rally looks done and they have started fading a bit. These are long term income names and I don't trade them but will add on any significant weakness. More yield income is never a bad thing.
BABA: Still watching and may add if it drops below $75 again. This just feels like its going to blow higher soon but I won't chase it into the 80s here.
CLF: Such a good trading issue and I'm looking for it to break below $17 and then pick up some downside volume closer to $16 before I start adding again. This one is a long term position hold on a range where I add between $14-$16 and wait for $19-$20 to exit.
DKNG: It's now off about 20% and looking interesting for a first position if you don't have one already. I already have enough shares and not looking to add but I think it has legs in time.
DLR: Still one of my favorite derivative AI plays with attached yield. If you believe in expanding data centers, it's a gem. it does move around a lot so don't take a 100% position with your first entry. Break your position up to 4-5 entries over time.
LULU: This is now back on my watch list after a horrific 12 mos. Retail plays don't respond quickly and it usually takes multiple quarters of catalyst to give new rise to a stock after a bad period. This is a top name, highly followed and I'm not rushing any entry. I'm willing to let it wither on the vine for a while and then start scaling into a position for a mid to long term hold
PLTR: A bit stuck in this position trade here after a relatively poor entry on a failed thesis. I'll either double up and wait or take the loss and move on.
TNA: I still think this one could have legs at the bottom of the range again in the low $30s, especially if we can get some selling here. would have been a nice 33% gainer and I'll tap it if we see low $30s again. Our position in the rate cycle should be a tailwind if you can balance entry price with market conditions.
TOST: Got some bad press and is coming in again. I exited the position for a nice gain but missed extra points of gain as momentum continued to build. Not uncommon with me. I'm watching.
From my watchlist, not much else is really moving me. Boring plays like KHC, K, UL, PG continue to do relatively well while providing great yield.
The financials are finally taking a breather as well and looking tired after a phenomenal run. Weakness here can be bought given our place on the rate cycle but keep entries small as they have all had a magnificent run.
As I finish this post, market retreating, AI names fading but NVDA roaring ahead and up nearly $100 now. Rotation out of the other names into the king seems to be the order of the day. SNOW has halved its earlier loss.
Snowy day here in Yellowstone ... it will be a hot tea and pajamas kind of relaxation day here in the cabin.
Stay well all.
TJ |
