If you were to crack open a dictionary and look up the definition of an uptrend, you’d likely see a picture of Nvidia Corporation’s (NASDAQ:NVDA) chart. Outside of a short one-month dip in February, Nvidia stock has been off to the races in 2016.
Click to Enlarge Like nearly every stock in the market, NVDA fell victim to the broad volatility that plagued the start of the year, but after hitting a low of $24.41 on Feb. 12, shares gapped above their 50-day moving average (the blue line on the chart below) and have been holding above it ever since. Nvidia stock is now up more than 170% in that time.
But just because NVDA is a classic example of an uptrend, it doesn’t mean that it hasn’t seen its fair share of pullbacks. In fact, those pullbacks are what make the formation a true uptrend. Weakness in May, late June and September all brought the shares down close to the 50-day average, but each time NVDA was able to hold above the important support indicator.
Plus, those pullbacks have all been followed by rallies to new 52-week highs, making the brief bouts of weakness spectacular buying opportunities.
Even the pullback in February before the recent rally and uptrend began was impressive. The decline took Nvidia stock down to its 200-day moving average (red line), which is a level it had been above since August 2015 (circled).
It’s worth noting here that most stocks have breached their 200-day trend lines at least once this year, so the fact that NVDA has not makes it one of the strongest performers of 2016.
From a fundamental perspective, there’s no denying that NVDA stock is expensive based on this year’s earnings estimate. But the outlook for the next few years is very positive, which is why shares trade at a premium to their peers. The fundamentals should be able to catch up to the share price over time.
In the current environment, investors are willing to pay up for growth, and NVDA is one of the best growth stories out there in the semiconductor space right now.
Nvidia Stock Looks Great on the Dips
As you can see above, NVDA is currently trading at an all-time high after yet another short-term breakout amid the post-debate relief rally on Tuesday. I have to admit that I’m never an advocate of chasing a stock that is near a high or has been as parabolic as Nvidia stock has all year.
However, this chart is the epitome of an uptrend. Until that’s broken, I would view any pullback to the 50-day moving average as a buying opportunity.
Matthew McCall is founder and president of Penn Financial Group, an investment advisory firm. Matt also is Editor of FUTR Stocks and the ETF Bulletin. Earlier this year, Matt and Hilary Kramer teamed up on Breakout Stocks where Matt serves as the Co-Editor. Most recently, Matt and Hilary joined forces again. This time, they are helping individual investors make money trading ETFs. For more on their latest project, visit www.etfedgesummit.com.
