Is NVDA the Next ARKK?
Daily plan 2.16.24
Today was the day when NVDA officially got into the capital allocation business with disclosing a stake in various AI companies like SOUN and ARM.
If this is a wise move, only time will tell. Perhaps, NVDA believes it is now matured enough to venture into other lines of businesses like AAPL did in yesteryears.
However, note that AAPL always had very organic growth. Yes they did buy some smaller companies, but they already had a very robust business understanding in industries they bought companies in.
NVDA employs very smart people and I am sure this decision was very well thought out. However, with anything else, only time will tell if NVDA is a successful allocator of capital or it goes the way of Time Warner & AOL.
Now, did the market believe that NVDA can succeed in this new venture, judging by price action alone?
I don’t think so.
Why do I say so?
Let us take one example of SOUN.
When this news broke out, SOUN rallied almost 90% today. However it closed the day lower, up around 60%. While 60% is not too shabby, let us take a look at a few interesting observations.
SOUN has a 200 million share float. It had a volume of 265 million shares today. This means 265 million shares traded hand. Most of this volume came upon that gap up at $3.
Now many of you may know, but for those that may not, for the market to move higher, you do not need more buyers than sellers. All you need is some motivated buyers and little to no sellers. Let us say I own one million shares of SOUN before this news broke out. If I believe this company is going to do well going forward, then I do not want to sell on this news. I keep my inventory of 1 million shares off market. It is not available to be had.
If enough shareholders of SOUN think like me, then the market must bid up without any sellers in between, in other words, it must go much higher to attract sellers.
You could argue this did not happen today. 265 million out of 200 million available shares were traded, which means that a lot of existing shareholders did sell into this pop. Else this would not have happened, and the market would have gone much higher to entice sellers.
This does not mean that SOUN will not go up. I think it will. But I think those who bought it near 4 today based on this news, if they capitulate on lower prices then I think we will go higher than 4 and may trade higher than 5.
This pattern I think could be easy to spot with an extremely high volume day in coming days to weeks. Regardless, my Line in Sand on SOUN will be around 3 bucks. I think as long as this gap holds, we are headed higher. It is about $3.5 now.
Levels for tomorrow
The key related market for me to watch tomorrow will be AAPL.
It is a big OPEX day so expect large volatility.
The key context for me for the session will be that can AAPL stay bid above 183-184 tomorrow? If so, I think we could see it impart support to the emini index as well.
Another aspect will be where does TSLA land? Can it do well tomorrow and stay above that 200 as well?
Having said that, my key level tomorrow will be 5060.
Scenario 1: As long as we remained below 5060 in intraday time frames, I expect a test of 5030. A break of 5030 can expose 5004 on the downside.
Scenario 2: With AAPL and TSLA above 184 and 200 respectively, I will expect emini to cement further gains above 5060.
At time of this post we last traded around 5050.
BTW what insanity in SMCI. Stock has now cleared 1050. It is hard to believe I shared this in Substack only few months ago at 65 and then reiterated it so many times at 250 and 500, 600.
It is up 1500% is nothing new. Happens all the time in many names. But the speed of move is quite simply stunning. As subscribers, you always have the access to the best ideas before any one else. Many more names like SMCI 0.00%↑ will be shared in coming weeks and months when the tape shows the way. Stay tuned.
~ toc
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