NVDA’s short position has hit a yearly low while the stock price reaches highs. The transition from reversal to momentum strategies highlights changing market sentiment. Despite moderate earnings forecasts, NVDA holds the highest short notional value of all stocks. Key comparisons with TSLA and AAPL reveal risks and opportunities.

NVDA's short position is at a low for the year, as the stock hits a high.

In the first half of the year, the stock price and short position were correlated, with investors following a reversal strategy by shorting the stock as it went up.

Since the high for the short position in July, the short position has decreased while the stock has increased, indicating a momentum strategy where investors are covering their shorts as the stock rises.

Earnings Model

The model used to understand NVDA’s earnings considers both the stock price and changes in the short position.

NVDA is priced to move 9%, based on either historical patterns or the options market.

The stock price has moved down 4.5% this week, but returns after earnings are mostly insensitive to the stock’s movement before earnings. Therefore, the model calls for only a small reversal on average.

The short position is a better predictor, but it has only moved by 1%, which is a weak signal.

Fortunately, both effects are in the same direction, so they add together, leading to a forecast return of 2.8%. This is not large compared to the expected return of 9%, so unless conditions change, the outlook remains moderately bullish.

NVDA’s Size

NVDA is now tied with AAPL as the largest stock and has the largest short notional value. NVDA’s notional is higher because its short position as a percentage of float is higher.

In terms of daily value at risk, NVDA moves 2.5 times as much on average as AAPL, so the daily short interest at risk for NVDA is almost three times that of AAPL.

The largest short position in terms of daily risk is TSLA, as it is the most volatile among the large short-interest stocks. TSLA’s short position is slightly larger than NVDA’s. If NVDA’s volatility picks up, it could surpass TSLA and become the largest.

Despite a smaller short position percentage-wise, NVDA’s short notional is the highest of all stocks.

Largest Short Notional Stocks

NVDA’s short interest and rising stock price highlight shifting strategies, from reversal to momentum. With the largest short notional value and earnings forecasts leaning bullish, NVDA’s dynamics signal both risk and opportunity. Watch TSLA and AAPL for related trends.

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