That was the question raised by The Market Ear after Friday’s close (“Shaky Market Confidence”). depositphotos  They noted that major indexes have fallen below their 50-day averages and are flirting with the 100-day averages. 

NDX is trading right on the 100 day (well below the 50 day). Note the big trend line coming in here. These levels have been important earlier this year.

 Source: Refinitiv Let’s consider two scenarios, in the context of the Magnificent Seven stocks.If The Market Bounces From HereIn a post last week (“When To Buy Nvidia”),  
I recapped my trading of that Magnificent Seven stock before the recent market rotation, 

Trading Nvidia Shares

I bought Nvidia as part of my trading Substack’s core strategy, which is to buy equal dollar amounts of Portfolio Armor’s top ten names, put trailing stops of 15% to 20% on them, and then replace each one with a new top ten name after we get stopped out. Using this approach, I bought Nvidia in February of 2023 and exited last April, for a gain of 259% over about 13 months (Nvidia has appeared in our top ten on multiple occasions over the last 8 years). 

1. Nvidia (NVDA 0.00%↑). Bought at $230 on 2/24/2023; stopped out at $825.06 on 4/18/2024. Profit: 259%.

Trading Nvidia Options

One difference between stocks and options is that options expire, so there’s no place for diamond hands: if you don’t sell or exercise before expiration, your options will expire worthless. Most of the options trades we do in my trading Substack are spreads, where the maximum possible gain and loss are pre-defined, What I do in those cases is open a GTC order to exit at about 95% of the spread, and lower that price, if necessary, as the expiration date approaches. Here are a couple of examples of me doing this trading Nvidia options. 

1. Call spread on Nvidia (NVDA 0.00%↑). Entered at a net debit of $2.10 on 2/20/2024; exited at a net credit of $4.74 on 2/22/2024. Profit: 126%.

2. Call spread on Nvidia (NVDA 0.00%↑). Entered at a net debit of $3 on 5/21/2024; exited at a net credit of $9.45 on 5/23/2024. Profit: 215%.

Those were both earnings trades. The spread between the strike prices on the first one was $5, and on the second one, $10. I placed the second trade after I started my current practice of aiming for ~200% gains on options spreads.

And then I mentioned a screen I’d use as a guide to when to buy Nvidia again: 

When I’d Place A Bullish Options Trade On Nvidia Again

I’d like to see a slightly better valuation on Nvidia with the stock still showing strong technicals. Let’s quantify that. Currently, according to Chartmill data, here’s what Nvidia looks like on three specific metrics (all of these are on range from 0 to 10, with 10 being the best):

• Technical Rating: 9

• Set-up Rating: 2

• Valuation Rating: 5

The technical and valuation ratings are self-explanatory; the set-up rating measures the short-term consolidation of share prices. Here’s what I’d like to see before I place my next bullish options trade on Nvidia: 

• Technical Rating: 6 or greater. 

• Set-up Rating: 6 or greater.

• Valuation Rating: 6 or greater. 

I set up an alert to notify me when Nvidia meets all three of those criteria. At that point, I’ll investigate it further, and if it looks promising, I’ll place another bullish bet on it.

 That Approach Should Work If There’s A BounceTo be more precise, that approach should work for most of the Magnificent Seven names if there’s a bounce.More By This Author:Trading A Wild Week For EV MakersTrade Alert: Being Tactical About Tesla When To Sell Nvidia