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#138: Nvidia Gets A Speeding Fine

#138: Nvidia Gets A Speeding Fine

micksonmatch
September 04, 2024

S2N Spotlight

I have been working on some new screeners that I will be launching on the website hopefully before the end of the month. Many screeners look for symbols that has moved X% in a day. While that can be helpful, I feel it has some relevance flaws. Let me explain. You can see in the dashboard tables lower down in the Performance Review section of this letter and on the website a Z-Score coloured table. Very briefly, it works like this. Each symbol has a unique average price range. A 2% move in EURUSD would be considered a massive move, while it would be pretty ordinary for Bitcoin. By Z-scoring price movements of a watch list, you get to use a tool that is consistent across different assets at identifying an important price movement. You will see me use this approach across many different screener setups.

In the screener below, I have looped through a bunch of symbols looking for negative 2 sigma events (z-score). I feature in this letter Nvidia and the Nasdaq; you might find it interesting that the S&P 500 came close but did not have a -2: Z-Score (-1.96). I hope the table below is self-explanatory. In essence, Nvidia has had 55 -2: Z-Scores in the last 25 years or since it listed. I show only the last 2 years of the chart, but the table includes all the history.

The market is being led down by Nvidia with more than a 9% drop on the day. A subpoena for alleged antitrust behaviour has spooked the market, but I think it was more like a bug looking for a windscreen. As you can see over the last 5 years, there have been eight -9% days.

S2N Observations

Before getting to the stuff below, I want to address something that was bothering me with yesterday’s Fast Fourier Transform chart. It seemed pretty strange that it was making such a bearish “call” based on historic price movements. Thanks to a subscriber, there wasn’t only one. I received the following explanation.

“Please note that the FFT’s departure around the edges of the series, is called the Gibbs phenomenon, and it is the consequence of attempting to fit piecewise continuously differentiable periodic functions around a jump discontinuity, in particular, around the beginning and end of the series!”

So there you have it, clear as mud. Note to self: don’t share something so dramatic without a better grip on what is going on.

Following Nvidia, the Nasdaq Composite index also registered a -2: Z-Score with a drop of over -3%. This has happened 620 times in 50 years. The chart below shows only the last 2 years so that you can see the markings on the chart, the table includes all the history.

We had gone 400 days since the Nasdaq 100 had a -3% day.

The S&P 500’s did not trigger a -2: Z-Score, but it also has been around 400 days since the last -2% down day.

The next chart looks at the average exposure of a large cohort of active professional US investors as of last Thursday. The index stood at 81%, which is bullish but nothing extreme.