- An earnings miss from Nvidia could send stocks tumbling 5% to 10%, according to one macro strategist.
- He says investors have bought prior dips, but that trend could soon be exhausted.
The stock market has a lot ridding on Nvidia earnings, and any disappointment there could trigger a sharp sell-off of 5% to 10% in a matter of just a few days, one macro strategist says.
One main reason is that the capital used to buy prior dips has been largely exhausted, leaving the market without a crucial backstop it's relied upon, said Peter Tchir of Academy Securities.
"People have committed almost all their cash, heavily dependent on Nvidia," he $4 on Tuesday. "If something goes wrong there, I just feel this cascading selloff, and you could get the zero-day expiration options kicking in in a negative way."
He continued: "I think we're going to see this kind of cascading, where people try and buy the dip, it fails, and gets pushed lower. So I think we get this fairly dramatic, in a couple day period maybe, of a 5-10% pullback."
The market has bounced back from recent hiccups — last week's hotter-than-expected inflation print $4, but quickly recuperated from the setback. But even during those down days, Tchir noted, he saw a lot of call-option purchases, which amount to bullish bets.
That bullishness is especially pronounce for Nvidia. $4 options traders are wagering an 11% upside after the earnings call this week.
"Whatever the earnings estimates are, expectations are way higher than that," Tchir said. "I think people are expecting a very, very good beat, and even if they beat, I'm wondering who's turning around to buy. It could be one of the cases where it has good numbers, it bounces after the numbers, and everyone looks around and goes: who's the buyer? Turns out no one is a buyer."
While some analysts have called Nvidia's stock "$4" and warned that its share price is unsustainable high, most are $4 on the semiconductor giant. Two weeks ago, Goldman Sachs it $4 — 15% more than its current price of $690.