Nvidia's Critical Q4 Earnings Test Shines A Big Spotlight On Direxion's NVDU, NVDD ETFs

ZINGER KEY POINTS:

• After a long period of sideways consolidation, Nvidia needs to demonstrate signs of vitality in its Q4 report.
• The seeming deadlock in NVDA stock offers relevance for Direxion’s NVDU and NVDD funds.

In recent years, investors of Nvidia Corp (NASDAQ:NVDA) have generally greeted the semiconductor giant’s earnings disclosures with optimism. Ahead of the upcoming fourth-quarter report — scheduled for release on Wednesday after the market close — sentiment appears to be far more tense. That’s because NVDA stock is finally showing sustained cracks in its armor, raising questions for speculators on both sides of the aisle.

The Direxion ETFs: With so much variance in the opinion stream, NVDA stock could go either way following the fourth-quarter disclosure. Financial services provider Direxion provides retail traders with a convenient mechanism to express their views with two countervailing exchange-traded funds.

A key similarity that runs through Direxion ETFs is flexibility. Usually, traders interested in leveraged or short positions must engage the options market. However, financial derivatives carry complexities that may not be suitable for all investors. In contrast, Direxion ETFs can be bought and sold much like any other publicly traded security, thus mitigating the learning curve.

Still, traders targeting these funds must recognize their unique risk profile. First, leveraged and inverse ETFs typically incur greater volatility than standard funds tracking benchmark indices, such as the Nasdaq Composite index. Second, Direxion ETFs are designed for exposure lasting no longer than one day. Holding these ETFs longer than recommended may expose traders to value decay due to the daily compounding effect.

The NVDU ETF: Since the start of the year, the Direxion Daily NVDA Bull 2X Shares has gained a little over 2%. Over the past 52 weeks, it swung up nearly 51%.

• Technically, the NVDU ETF sits in a rather precarious situation, with the 50- and 200-day moving averages converging toward the $110 level.
• Adding to concerns for the bulls is declining volume levels over the past year. Ideally, growth-oriented names should see rising participation over time.

The NVDD ETF: Relative to the January opener, the Direxion Daily NVDA Bear 1X Shares has lost more than 3%. Over the past 52 weeks, it has slipped more than 41%.

• Currently, the price action of the NVDD ETF sits just below the 50 DMA, along with the 20-day exponential moving average.
• The 200 DMA is converging down toward the $40 level, which may be setting up a situation where the bears may attempt to drive the inverse fund above key moving averages.

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