Further update on NVDA

 

As expected, excellent results by NVDA, beating handsomely on all fronts. And as expected, the price has fallen after hours from a high of 174 to 153.  In the process, the 50 DMA has been decisively broken. A lot of folks have been wondering why such things happen – a 12% fall from highs despite a handsome beat and a good outlook.

As I have tried to explain before, markets work on sentiments. NVDA has seen a quadruple jump in its stock price in 14 months – which by itself is phenomenal – but then it has taken the stock to very high valuations in quick time. It has the potential to reach 250 or more but then it has to take a pause, have a healthy correction before it can build on recent gains. There is lot of expectation play, sentiment play, contrarian play and technical play involved in a stock like this. Also, think about the people who got in at 40 and 80 or at 120 in the recent past. When do they sell? Think about insiders. When do they sell? Everyone is not going to keep the stock for retirement or for their yet-to-be-born grand children!

Now that the 50 DMA is broken,  NVDA is getting possibly bearish for the short term. One of our targets was 143 with a 72% probability. (You can read the earlier article and price probability forecast from Aug 8 below this post).

As mentioned in the prior article, NVDA stock was sitting atop the weekly Keltner Channel and I expected the price to be pulled down into the Channel despite what the results were going to be. (If the ER had surprised to the bad side, I bet NVDA would have probably dropped to 130 or below by now). Typically, when such a pull into the channel occurs, and if the stock is already in overbought territory, it indicates sellers may emerge with force and push it down further. The channel’s midpoint becomes a potential support level where buyers would emerge again. Now this midpoint support as on the day of my earlier posting happened to be at 143 (on weekly chart).  And today’s LOD around 165 happened to be the same channel support point but on the daily chart.

Now that the ER euphoria is over, let us take a look at what is in store next. In my view, NVDA remains weak for now. It still has a high potential for growth and is LT bullish. However, for the next few weeks, we may see this correction getting steeper, unless NVDA recovers on Friday & sets up a weekly close above the 50 DMA again.

The potential targets are – the weekly Keltner support at 142 (it could become 139/140 as the price falls & the channel slopes down) and by extension, the 100 day moving average (currently at 135). These two targets are derived from two different charts – one is a weekly chart, the other is a daily chart. Here they are:

NVDA weekly

 

NVDA Daily

Key take-aways:

  1. Solid management, solid performance, solid growth, LT bullish. Nevertheless, NVDA is exhibiting short term weakness. Hence some more correction may be due, according to my PP analysis
  2. A decisive Weekly close below the 50 DMA will provide a  bearish confirmation. For that confirmation, we need a close below 157 this Friday and in such an event, we will very likely see the price dropping to 140 levels before further rise.
  3. However, if the stock closes above 157 this week, it might recover from bearishness but in that case, I would expect it to trade in the 152-172 range for the next one quarter.

 

About Venkat Pulakkad

Entrepreneur, management consultant, blogger & forecaster. Founder of Flourish Research Media that provides insights on markets, trading strategies & risk management. Currently an active trader with 20+ years of experience trading Forex, Stocks & Options. Areas of interest: Trend / Swing trading, Macro-tech analysis, building trading strategies, deploying Risk Management techniques, and helping / coaching traders to become successful traders. Twitter link: https://twitter.com/Flourish_Venkat      
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