Quiet Week

It’s been a quiet week. It is to be expected occasionally. I understand that I cannot make money in trading every day with my swing trading strategy. Sometimes, the market offers no set-up for me to extract profit. You may be able to develop a different strategy, for example, scalping on low time frames. Unfortunately, this trading method does not fit my personality; I have tried and failed. A great YouTube channel to follow if this interests you is Live Traders TV. I find the team to be honest, educational, and entertaining.

Most of the Magnificent Seven, the largest tech companies in the USA, have released updates for the fourth quarter, and for now, the artificial Intelligence boom seems to be justified with earnings increasing. This could change quickly if the benefits of A.i do not materialise soon. I’m not exactly sure what it is we are waiting for. Is it Arnold Schwarzenegger to appear and save the world from our out-of-control toaster?

At the time of writing, we eagerly await Nivida’s results (the leader of the A.i revolution). These results come after the bell on Wednesday. Will Nivida keep the A.i bubble expanding, or will investors’ and traders’ sentiment normalise to some rationality?

Edit: We now have results and NVidia, and it’s a beat across the board, with revenue coming in at $22.10b compared to an estimate of $20.62b and EPS of $5.16 vs 4.64. The need for A.i is driving this considerable growth, and Jensen Huang, one of the founders and CEO of Nvidia, says that super-fast computing and creative A.i have reached a turning point. Now, there’s a massive demand for them everywhere, in all sorts of companies and countries.

The company is now worth $ 2 trillion, more than Canada’s GDP.

Any business that talks of A.i is immediately rewarded with share price appreciation. This all reminisces of the internet boom of the 2000s, and if I were a long-term investor, I would be presently sitting out of the A.i sector. It’s hard to predict who the winners will be. If you had to guess who the big beneficiaries of the internet revolution in 1999 would be, would you have picked Amazon, an online store selling used books?

I have now entered a period when I bump into old friends who have never invested before, and they tell me how they have just purchased stock and joining in with the latest A.i boom.

We are not investors; we are traders, and with proper risk analysis, we can take advantage of this volatility. As a swing trader trading the trend, I’m happy to hold my position, taking regular profits and moving up my stop loss. I suspect we will not get a significant pullback until the earnings soften, and with supply and demand currently working in Nvidia’s favour, it could be a while before we see this. Still, much talk of competition lurks, and companies could reach a point when they have enough graphic cards or find a cheaper alternative.

Be patient and wait for the setup

Since the start of the year, the overall market has been overly extended, as you can see from the chart below; price has not been this distance away from the 50-week Moving Average (the metric I use to anchor price) for some time, and I welcome a pullback to this area. This would give us a healthier market to trade in.

I use this time to add companies to my watchlist and catch up with other projects.

During a quiet stock market period, when there’s not much significant movement or news impacting the markets, or you feel that the technical situation on the chart is too complex to work with, investors and traders can use this time to engage in various activities to stay productive and prepared for potential future developments. You need to know when to sit out.

I have been guilty in the past of trying to make a situation work when there is no obvious trade present.

One could argue that you could start trading the lower frame for a short position, but in my experience, it’s hard to jump around from long bias to short bias. This could work for you, but it doesn’t fit my trading style.

Pullbacks can last some time, and this is where patience comes into play in your trading. Patience is a fundamental virtue, and its importance cannot be overstated; you will hear this repeatedly as you develop in your trading journey.

We can’t sit there looking at charts; trust me, I have, and it sends you bonkers.  We need other activities.

SolarEdge (SEDG) and Enphase (ENPH)

Like a race car sitting at the starting line, revving the engine, waiting for the green light, SolarEdge and Enphase appear to be waiting for concrete evidence of rate cuts before a push higher. We get a spike with every glimpse of hope that rates will come down. Is this all we need to send the stock to the moon?

The businesses operate in the renewable energy industry, specifically within the solar energy sector. SolarEdge is a leading provider of solar power optimisation and monitoring solutions, specialising in developing and manufacturing photovoltaic (PV) inverters, power optimisers, and monitoring platforms for solar energy systems.

The stocks still have some bearishness to them. The company’s stock prices have been in freefall since July 2023 on news of increasing and higher for longer interest rates in the US.

This week, the fundamentals show us that SEDG is feeling the pinch of the current economic situation and saw a significant drop of one-fifth in its market value following a disappointing performance in the annual earnings report.

Solar Edge reported full-year revenues of $3 billion, marking a 4% decrease from 2022. The fourth quarter was notably weak, with revenues plummeting by 56% compared to the previous year.

Gross margins for the year declined from 27.1% to 23.6%, while net diluted earnings per share fell by 64% to $0.60.

SolarEdge said the second-half downturn was due to a “weaker market of higher interest rates and lower power prices,” resulting in an inventory buildup that hindered shipments despite record solar installations in the first half.

The company anticipates first-quarter revenues for 2024 to range between $175 million and $215 million, indicating a substantial decrease from over $940 million in the first quarter of 2023.

For Full Year 2024, revenue is estimated to be down -37.4% to $1,863 billion, and an unprofitable Basic EPS of -$2.88, so things look rather grim. So, why do I look here?

I think things could change quickly on some certainty surrounding interest rates. The analysts continue their gloomy outlook for SolarEdge and Enphase, but as price action has shown us in recent weeks that retail traders are waiting to jump on board. As we receive some certainty of lower rates and I see some momentum to the upside, I may jump on the trend after careful risk analysis and thorugher technical analysis and a tight stop.

Other Trades This Week

At Nvidia on earnings after the bell on Wednesday, I watched the chart. I saw the numbers coming out; the stock dumped 5% down. How can this be with such excellent numbers? Is the outlook poor? Is there something else hidden in the report? Who was fast enough to spot this? What is happening?

I have spent over a decade watching charts daily, and eventually, I got a feel for what is happening. I compare it to driving. You get a feel for the road and predict things before they happen.

I heard it was once possible to place a buy trade with a tight stop loss and place a sell trade with the opposite stop loss. Whichever way the stock went, you would hit one-stop loss but profit in the desired direction. The market makers are wise to this, so now, especially with a name like Nvidia, they will move the stop up and down to shake most people out. This is, of course, my conspiracy theory!

I identified great numbers from NVidia at 2120 (UK time) and then watched for 5-10 minutes. Once price action slowed slightly and increased over the volume-weighted average price indicator (VWAP) and the moving averages on the 5-minute chart, I hit buy with a 1% stop loss. If this stop loss had been hit, I would have walked away and not tried fighting it. The trade was successful. I strongly advise against performing trades of this nature on such volatile stocks on the earnings release if fairly new to the market.

It is a dangerous game trading earnings. I give myself one chance, with one stop loss.

The point of sharing this trade is to encourage you to watch the chart, watch stocks from different sectors, and get a feel for how they move. I would have failed miserably if I had taken this trade several years ago. In fact, I did, trading Facebook, where I went from being 5% up to 7% down and stopped out—then, revenged traded to lose more. Facebook finished that day 14% up.

See you next week