Nvidia Corporation (NASDAQ:NVDA) has popped out a few important developments in recent days. For bullish investors, though, the most significant event might have come out of the NVDA stock chart.
The situation looks complicated. Nvidia stock appears to have some upside overhead, but not necessarily blue skies. My recommendation then isn’t a price target, but a way to participate in upside without your portfolio getting socked.
Let me explain.
How Nvidia Stock Is Setting Up
Monday was a nice session for NVDA stock. The chipmaker gained more than 3% compared to a fractionally mixed performance for the S&P 500 and Nasdaq. Behind the bid, Goldman Sachs came out with a bullish reminder that Nvidia is on the company’s “Conviction Buy” list.
It’s not the first time Goldman has reiterated its position on NVDA, which includes a price target of $130. In fact, the influential investment bank came out as recently on both Feb. 27 and March 6 in similar defense of shares. Support for multiple calls has followed various sound bites and items of notice out of the company.
The late February announcement was an intentional shout-out to investors of an opportunity to purchase shares on weakness — one supported by the company’s secular growth prospects in gaming, data center and automotive markets.
Goldman’s March edict — while NVDA stock was near three-month lows — saw the “Conviction Buy” bandied about once again. On that occasion, Toshiya Hari backed the recommendation with new “time-to-market, competitive advantages” and Nvidia’s rollout of the GeForce GTX 1080 Ti GPU.
In Monday’s session, Nvidia stock traded above the prior calls, but that didn’t dissuade investors from doing more than just listening to Goldman’s latest rehashed proclamation.
Following an Nvidia event in London, enthusiasm for the company’s “off-the-shelf” machine learning models and its top notch customer support lifted NVDA shares to nearly one-month highs.
NVDA Stock Chart
Click to Enlarge
Following an extended number of weekly and increasingly volatile bases — six by our count, as shown in the provided chart — NVDA stock is now building a high-level first base.
This has occurred as a result of Nvidia shares undercutting the pivot low of base No. 6.
Thanks to these constructive developments, NVDA stock has removed a good amount of the excessive and more erratic price behavior associated with the final late-stage, failed-base breakout.
Of course, there’s no guarantees this first base will eventually resolve itself to the upside and new all-time highs. But Nvidia has done a lot of things right — fundamentally and technically — and looks good overall.
How to Trade NVDA Here
Given that the weekly chart is attractive, but slightly at odds with a more questionable daily view (and an even more tenuous broader market), I want to use a tight, slightly more defensive collar.
With shares of Nvidia at $109.45, the Apr NVDA $115/$105 collar is priced at $109.60. The limited-risk strategy serves the purpose of keeping the trader positioned long, while maintaining guaranteed insurance below $105 over the next month.
As with any collar, this spread on NVDA stock does initially cap profits at $115. The good news is if technical momentum through the strike does occur, you can adjust the collar “out and up” to access additional profits.
In the event of a technical U-turn, you’ll smartly steer clear of significant damage.
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.
