The reasons behind the stock market's gyrations are more subjective than just about any other set of numbers, and yet we insist on trying to make things rational, orderly and exacting when we try to determine how they trade. We refuse to accept the arbitrary and capricious nature of their movements.
I found myself flummoxed yesterday when Nvidia (NVDA) , the huge graphics chip maker, long a loved stock, wasn't down as much as it could have been given 1) its huge miss -- and it was huge, one of the biggest I have seen in ages; 2) its bizarrely bad forecast guide-down, as nasty as they come; and 3) whole new areas of weakness -- like the once-red-hot gaming biz and the smoking data center, and not just a crypto mining card shortfall, which was the culprit in its last earnings report.
The initial take-down of 28 points dropped the stock back to near where it was coming in to the year, which made a lot of sense to me. Nvidia's stock was then well on the way down to levels consistent with stocks of other companies that have had to pre-announce.
Still, I am not used to seeing stocks stay within the range of where they had been when there is such a devastating earnings blow. They almost always fail to hold the old floors and, instead, take them out in spectacular fashion usually at the end of the same day of the pre-announcement.
That makes sense. Most orders are handled in a way where the broker wants to show he did better than the closing price, so the propensity is for the broker to sell a great deal of stock in the middle of the day then jam the remainder down at the end to show he got that average that was higher than the close.
But what I failed to realize is that there are people who very much want to get into to Nvdia -- hoping, one day, that it will so self-immolate that they can at last buy the ultimate momentum stock of this age at a much better price than would otherwise be had.
Monday was that day.
Those impatient buyers -- at least in the short-term -- do not care whether they pay $128 versus $138. They knew enough not to pay $238 or $280, where the stock sat not that long ago, and maybe that's all that matters. I kept trying to put myself in the buyers' shoes and asking them, guys why don't you just wait? It is coming your way if you just let it plummet. Stop bidding. Let the darned thing fall.
But maybe these pseudo-bargain hunters understand that, at last, the stock is cheap and that the issues are all transitory and my quiet admonitions meant nothing to them. They are approaching the situation clinically: It's a broken stock, not a broken company and it is time to do some buying.
It's been a while since we have had genuine pre-announcements of big stocks. Things have been so positive for so long that you have to wonder whether there is a whole new group of managers who don't realize that when a company pre-announces, it is because there is no hope that the next quarter is any good either, or they would just shut up and wait it out. This new cohort believes that a pre-announcement is an all-clear moment to buy.
I think that's ridiculous. The notion of a company's stock not going below where it has been not long ago after a pre-announcement seems totally chimerical. But the brick wall of buying that Nvidia's stock ran into was pretty strong and powerful, not unlike the brick wall that Apple's (AAPL) stock ran into after its spectacular blow-up.
I say if you really want to get a bargain when you get that pre-announcement, you want that stock to take out its lows before you buy. If the stock doesn't do it initially, then pass. It's reasonable to believe it could go lower. That's how I felt and still feel about Nvidia.
But then again, the marketplace can take into account that emotion, it can accept that a higher low might be reasonable given that the company is standing by its rest-of-the-year story and that, ultimately, is what Nvidia did do, even as they did that last time.
Pardon me, but I'm not buying it. The decline that we saw in Nvidia just wasn't deep enough, wasn't rough enough. Then again, as I said at the beginning, the stock market is arbitrary and it is capricious and maybe I am being too chary and too picky, and it has, indeed, bottomed. Maybe it is that much better a market than I realize. Maybe I am too old school. Or maybe school will reconvene as a lower price.