Twenty-five lighters on the dresser, yessir, and I gotsta get paid.
That’s what NVDA investors are saying today.
The ZZ Top (God rest Frank Beard) version of that song has Billy Gibbons at his gravelly best. I saw a documentary on the band, and Billy would run around the studio outside in the winter to get that raw vocal quality.
I don’t know what kind of raw vocal quality will resonate in NVDA results tomorrow. I do know machines will determine the outcome. Not humans. Not even what NVDA reports. It’s predetermined.
Predestination?
No, we’re not talking hieratics here. We’re talking about the way the stock market works.
Speaking of which, I was on CNBC yesterday with Brian Sullivan on why volatility has mushroomed around earnings – and what public companies should do about it.
Short answer? Not what NVDA will do, reporting after the closing auction when there’s no midpoint-priced volume, no volatility girders. Just machines and bets.
How does it work?
Remember Jane Street’s tiff with regulators (subscription required) in India a year ago? I’ll give you the Copilot Cliff’s Notes version:
The Securities and Exchange Board of India (SEBI) claimed Jane Street aggressively bought bank index stocks and futures early in the trading day during monthly expirations, pushing the index up. At the same time, the firm built bearish options positions on the same stocks so that what lifted the market early then reversed late.
The regulator argued that this selling pressure contributed to a decline in the index near market close, especially on options expiry days when settlement values are critical, generating large profits for Jane Street while distorting price signals for index investors. SEBI fined Jane Street $550 million for illicit gains.
Well.
That sounds like any normal day in the US stock market. And it’s how hedge-fund bets can play out.
Realize: We don’t see the names and numbers on these bets. We see PATTERNS and day-over-day changes.
Take DKS. In the two days prior to yesterday’s earnings when DKS lost 30% of its value, investment plunged 30%, quant machine trading shot up 30%, volatility doubled, Demand dropped to 1.8/10.0 and Short Volume rose over 61% of all volume.
Which way is that stock likely to go?
Down.
DKS should not have reported results on Counterparty Tuesday when banks and their customers settled accounts on expired and new monthly options.
Stocks didn’t rise yesterday on “investment.” They were up on insurance settlements – like winning a lawsuit and getting a payout. Like Jane Street in India (no offense to Jane Street, which rigorously denied wrongdoing – and I agree that they did nothing wrong).
Jane Street used the mechanics of the market to its advantage. As they have a right to do.
Hedge funds betting on your earnings, public companies, are using the mechanics of the market to their advantage.
And so should you.
Think about this. Hedge-fund bets pay on minimal trading volume. Your earnings release comprised of machine-readable data hits the wire and floods like a drug into an execution management system that unleashes a machine-gun burst of tiny trades outside hours.
It might take only a few hundred shares to change the stock-price 20%, getting the bet made through a bank like Goldman Sachs to pay off big.
It’s not about trading shares per se. It’s about CHANGING THE PRICE.
So, you should turn the tables.
-Remove the machine-readable data that gets stacked up by software next to data the hedge fund has already gathered.
-Don’t report on Red Flag days! Like Counterparty Tuesday, a Kevin Warsh speech day.
-And cozy your earnings release right up to all that stacked, scheduled, midpoint-priced order flow awaiting the opening auction, so a massive army of real institutional order flow overwhelms tiny machine-gun trades.
Or you can just ask us for help.
Investors, how about you? You need to know before, not after, what Demand and Supply signal. After is too late. You can’t out-gun the machines. They have all the data.
You can know, however, know what Demand is signaling. In NVDA, Demand is weak, Supply has risen. It’s not bad. It’s just not like a racehorse you’re trying to get into the chute before the starting gun at the Kentucky Derby.
And NVDA, like SPY, has had net selling on twelve of the past fifteen trading days. Back to August 5, the very day flows as reflected by Broad Sentiment peaked at 6.0.
SPY is the same – net selling 12 of 15 trading days into NVDA earnings. That means NVDA is the market. If money was quietly slipping out the back door ahead of time, well, you probably should too.
It’s not a guarantee of outcomes. There’s no such thing. There are only probabilities, central tendencies. But anything more than 50% is an advantage.
Public companies, it’s time to start playing a new earnings chess game. Take back control of the game. Do your shareholders a solid.
Investors, don’t bet on fundamentals. Statistically it’s worse than a coin-flip. Literally, a random outcome is more predictive than topping expectations. Always know Demand and Supply before earnings reports take a bite out of your investment returns.
