Stocks could suddenly drop 5-10% if Nvidia earnings disappoint as dip-buying fails, macro strategist says

• An earnings miss from Nvidia could send stocks tumbling 5% to 10%, according to one macro strategist.
• He says investors have bought prior dips, but that trend could soon be exhausted.
• "If something goes wrong there, I just feel this cascading sell-off," Peter Tchir told Bloomberg.

The stock market has a lot ridding on Nvidia earnings, and any disappointment there could trigger a sharp sell-off of 5% to 10% in a matter of just a few days, one macro strategist says.

One main reason is that the capital used to buy prior dips has been largely exhausted, leaving the market without a crucial backstop it's relied upon, said Peter Tchir of Academy Securities.

"People have committed almost all their cash, heavily dependent on Nvidia," he said in a Bloomberg interview on Tuesday. "If something goes wrong there, I just feel this cascading selloff, and you could get the zero-day expiration options kicking in in a negative way."

He continued: "I think we're going to see this kind of cascading, where people try and buy the dip, it fails, and gets pushed lower. So I think we get this fairly dramatic, in a couple day period maybe, of a 5-10% pullback."

The market has bounced back from recent hiccups — last week's hotter-than-expected inflation print knocked stocks lower, but quickly recuperated from the setback. But even during those down days, Tchir noted, he saw a lot of call-option purchases, which amount to bullish bets.

That bullishness is especially pronounce for Nvidia. According to the Wall Street Journal options traders are wagering an 11% upside after the earnings call this week.

"Whatever the earnings estimates are, expectations are way higher than that," Tchir said. "I think people are expecting a very, very good beat, and even if they beat, I'm wondering who's turning around to buy. It could be one of the cases where it has good numbers, it bounces after the numbers, and everyone looks around and goes: who's the buyer? Turns out no one is a buyer."

While some analysts have called Nvidia's stock "frothy" and warned that its share price is unsustainable high, most are still bullish on the semiconductor giant. Two weeks ago, Goldman Sachs it expects Nvidia to climb to $800 — 15% more than its current price of $690.