The Nasdaq Composite just scored its 10th straight up day. And investors who fled the tech sector last month are returning in droves. It appears order and profits have been restored in momentum land. Look no further than Nvidia Corporation (NASDAQ:NVDA), the indisputable poster child of the space. NVDA stock is now a whisker from record highs.
There’s no time like the present for a fresh take on Nvidia. It’s itching for a breakout after a five day pause.
Let’s begin with some tech sector analysis using the PowerShares QQQ Trust, Series 1 (ETF) (NASDAQ:QQQ).
Tech Is Boomin’
Spectators should find two things most impressive about QQQ.
First, its steep 10-day ascent has traversed from the lower band to the upper band of the Bollinger Band indicator in rapid-fire fashion. The sharp rise is causing quite the widening of the bands as well. Second, prior resistance zones have proved powerless in the face of the Nasdaq’s fiery flight. Two old ceilings have been shattered during QQQ’s march to new heights.
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The only thing that should give buyers pause is the extended status of the sector. Some backing-and-filling may be in order to digest the 6.2% gain that QQQ shareholders have enjoyed.
While the overall tech sector is skirting the stratosphere, NVDA stock has paused for a few days and is therefore providing a more attractive setup.
Nvidia’s Charts
To be honest, looking at the weekly chart of NVDA gives me a bit of vertigo. And I don’t think there’s much value-add based on today’s setup and trade idea, so let’s hop right to the daily chart.
Just picture a rocket ship, and you’ve pretty much got the gist of Nvidia’s weekly chart, anyways.
NVDA stock has climbed higher right alongside the Nasdaq over the past two weeks. But, it has at least chopped around a bit for the past few trading sessions creating a short-term base. This has allowed the stock to work through at least some of the overbought conditions that have arisen.
The location of this week’s consolidation isn’t random. We’re basing just beneath the stock’s all-time high from June 9. And that’s a good thing. It’s setting up a trade-worthy breakout pattern. Thursday’s pop carried Nvidia right up to resistance. All we need now is one more push from buyers.
For a more detailed view of the setup, let’s take a peek at the 15-minute time frame.
Check out the series of higher pivot lows showing increased aggression by dip-buyers. The late-day rally yesterday ushered the stock to the resistance threshold. Now we just need the bulls to step through tomorrow.
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Watch for a break above $168 to confirm.
How to Trade NVDA Stock
Nvidia doesn’t report earnings until Aug. 10, so that leaves a full three weeks to play the stock until the binary boogeyman comes to town. That’s plenty of time to profit from the coming breakout if the stock decides to really ramp.
At $167.50, Nvidia shares are a touch expensive for a straight call purchase, so let’s go with a spread trade instead. Its implied volatility rank is running hot at 85%, so option premiums are pumped. We can capitalize on that as well as create a high probability of success by selling out-of-the-money bull put spreads.
Sell the Aug $150/$145 bull put spread for $1.10 cents or better. Instead of riding to expiration to try to capture the max reward of $1.10, I suggest taking profits if the spread value drops toward 60 cents in value.
The max loss of the spread is $3.90, but you should lose far less if you bail when the stock falls to $150.
As of this writing, Tyler Craig did not hold a position in any of the aforementioned securities. Want to learn how to master the art of option selling for high-probability cash flow? Check out Tyler’s recently released video series through Tackle Trading on how to systematically sell iron condors for monthly income.
