It’s game time, not game over, for bulls to buy shares of graphics chip design giant Nvidia Corporation (NVDA) on weakness.
Shares of NVDA, an outstanding outperformer for bulls during 2015’s second half, have been pressured in 2016.
First, a grossly oversold market has gotten the better of Nvidia in recent days.
Macro weakness has forced shares into a corrective move after it attempted a breakout to fresh multiyear highs at the end of December.
Secondly, investor concern over Intel Corporation’s (INTC) earnings report this past Friday led to an outsized sympathy loss in NVDA of around 5.5% and intraday loss of about 8%.
But Nvidia isn’t Intel.
Nvidia’s dominance in the gaming market and inroads into virtual reality, high-performance computing, cloud and automotive platforms like Tesla Motors, Inc’s (TSLA) should shield shares from Intel’s PC-related woes.
Having said that, Nvidia is a “call of duty” situation for bulls to buy NVDA stock on weakness!
NVDA Stock Weekly Chart
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Unlike most of its tech peers, NVDA retained its uptrend and stayed well above the commonplace testing of the October 2014 low during the August flash crash — and the last significant correction for the broader market.
Immediately following its much slighter losses during the late August period, it improved its position as one of the market’s new leaders.
As the market and most stocks rebounded but failed to reach new highs after the flash crash, NVDA stock managed to break out above longstanding up-channel resistance to fresh multiyear highs.
Currently and with the broader market again under technical duress, the company is still demonstrating relative strength. What’s more, NVDA stock is offering bullish traders an opportunity to purchase on price weakness within a meaningful support area.
Technically, from approximately $24.75 to $27, NVDA stock contains three Fibonacci levels, the prior up-channel and 2011 highs, which should act as zone support for shares of Nvidia.
Further and bullish, with Friday’s gap lower, NVDA stock has filled its upside price gap from November’s well-received earnings report.
Lastly, with Nvidia stock having corrected a constructive 21% — and the laid out zone low representing a still-healthy pullback of 27% — there’s additional evidence the end-game of this correction will be higher prices in 2016.
NVDA Stock Long Call Strategy
Given an extremely oversold market, I favor a straight long call strategy. Premium to buy a long call is expensive with elevated readings in the VIX, but it’s the type of high-probability situation where rapid gains do occur and usurp a more modest, hedged position such as a vertical.
Reviewing the NVDA stock options board, the February $29 call for up to $1 is favored. With shares of NVDA near $27.50, the out-of-money call is in position to expand by 55% to 70% on a quick move of 6% to 7% and into at-the-money status.
Should this type of rally in NVDA stock materialize, that’s when I’d look to adjust into a vertical or take partial profits.
Likewise, if oversold conditions do beget more downside in NVDA stock, I’d consider position management and take a similar-size loss if shares move below the detailed zone support of $24.75.
Investment accounts under Christopher Tyler’s management do not currently own positions in any of the securities or their derivatives mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT.
