Shares of Nvidia Corporation (NASDAQ:NVDA) tacked on another 7.3% on Thursday, bringing its year-to-date performance to just about 50% and the 12-month return to a whopping 240%. As a result of Thursday’s move, however, the stock is once again near-term overbought, thus offering active investors a chance to lighten up on long positions (i.e. taking partial profits), looking for short-side trades for cash flow, or at least not buying more stock at these lofty levels.
For the record, allow me to be crystal clear that I am a believer in the growth story that is Nvidia as well as in its stock price through the intermediate as well as likely the longer-term. As such, the ideas I offer today to lighten up on rallies and buy more NVDA stock on dips are tactical in nature and not a bearish view on the stock.
NVDA Stock Is Moving
Thursday’s squeeze higher in the stock came on the back of another analyst — this time at Citigroup — upgrading the stock. As we so often see with high-growth stocks, analyst are trying to out-do each other and the $180 price target now takes the highest estimate on Wall Street.
When I last discussed shares of Nvidia on May 11, I offered that a breakout following the company’s latest earnings report was to be respected and the stock became a buy once more. The stock has since rallied just about 30%.
On the multiyear weekly chart, we see that NVDA stock’s latest rally since May 11, while worth respecting, is once again resembling a rocket-launch trajectory that through a multiweek lens is unlikely to be sustainable.
The MACD oscillator at the bottom of the chart is now also reaching its previous highs from late 2017, where the stock began to stall.
On the daily chart we see that this recent rally is also reaching an upside target around $160, which we arrived at taking the length of the November 2016-December 2016 rally and adding it on top of the consolidation period (black lines). Here we also see that the stock is once again well extended above both its eight- and 21-day simple moving averages (blue and yellow line respectively) while the daily MACD is not at all-time overbought readings.
To be clear, just because a stock has an overbought momentum oscillator reading does not make it a “sell” or a “short.” It is the combination of things such as I laid out above that now make NVDA a stock not to buy at these levels, until a consolidation phase sets in.
Such steep rallies like in NVDA stock are important technical signals that can lead to high-probability setups, and for those unfamiliar, I’ll be hosting a special webinar June 15 for InvestorPlace readers to explain these signals and how to turn them into winning trades.
At current levels near the $160 mark, active investors and traders could look to lighten up and take partial profits on any existing long positions (while looking to buy again after a consolidation period has set in). More aggressive traders may look to buy cheap at-the-money puts or put spreads like July $160 puts or even short the stock in small size, which should lead to quick profits it the stock begins to stall or consolidate lower.
Where would I look to re-establish new long positions in the stock? I will be looking for a bullish reversal after any consolidation period and will update you in this column.
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