U.S. equities are pulling back on Thursday after Wednesday’s air-pocket surge driven by short-covering inflows and first-of-the-month buying. Watch for the dynamic to continue to darken into Friday, when Federal Reserve Board Chair Janet Yellen will speak in Chicago and will surely talk up the likelihood of a rate hike at the March policy meeting in less than two weeks.
Remember, the Fed has only raised rates twice in the past ten years. But now, it’s on track to raise rates twice in a three-month period.
That sets the stage for a breakdown in Nvidia Corporation (NASDAQ:NVDA), a wilting momentum favorite that was seen as a play on deep learning and autonomous transportation.
Time to Sell NVDA Stock
Problem is, the bulk of the company’s revenues are still generated selling high-priced graphics cards to PC gamers. After a very successful GTX 1000 product launch last year, the company will suffer from its own success as year-over-year growth rates slow. In its latest earnings report, NVDA also highlighted a softening in demand from OEMs.
NVDA stock is now testing critical support near the $100-a-share level that’s been in play since late December. A breakdown here would put the 200-day moving average — near $75 — in play for a 25% drop from current levels. Intermediate support will likely be found near the November/December trading range around $85, which would be a good place to trim short-side positions.
In anticipation of this, I have recommended a position in the March $100 NVDA puts to my Edge Pro subscribers. The company will next report results on May 11 after the close. Analysts are looking for earnings of 66 cents per share on revenues of $1.9 billion.
Anthony Mirhaydari is founder of the Edge and Edge Pro investment advisory newsletters. A two-week and four-week free trial offer has been extended to InvestorPlace readers.
