Trade of the Day: Nvidia Corporation (NVDA) Stock Needs Time for Repairs

NVDA stock - Trade of the Day: Nvidia Corporation (NVDA) Stock Needs Time for Repairs

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Nvidia Corporation (NASDAQ:NVDA) had another red-hot year going heading into Thursday evening’s earnings report, higher by about 55% for the year. However, after the Q2 announcement, investors are selling NVDA stock with both hands.

I believe this ultimately will provide a better buying opportunity, but tactical traders and investors must exercise patience and not jump the gun.

For its latest quarter, Nvidia beat analyst expectations on both the top and bottom lines and issued strong guidance. The chipmaker reported profits of 92 cents per share, as well as $2.23 billion in revenues (a 56% spike year-over-year). However, investors still found something to be concerned about: datacenter sales, which slowed materially after delivering big growth over the past 12 months.

To gain some much-needed perspective, let’s apply a multi-time-frame approach.

NVDA Stock Charts

On the multiyear weekly chart, we see that while Nvidia clearly is trending higher, it has over the past few months once again moved higher and away from its yellow 50-week simple moving average while remaining very far above both the 100- and 200-week moving averages.

That alone is no reason to call for a stock to drop, but it does help in the risk management process as we look at the next two charts.

NVDA stock chart weekly view
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Moving averages legend: red – 200 week, blue – 100 week, yellow – 50 week

On the daily chart, we see that following a pause from December 2016 into May 2017, NVDA stock resumed its sharp incline following the May earnings report and began building a technical formation we refer to as a “rising wedge,” marked by the two black lines.

As price continued to rally in July, momentum — as represented by the MACD oscillator at the bottom of the chart — had peaked in early June. This created so-called “negative divergence” between price and momentum on the chart, and often this can act as a warning sign.

NVDA stock chart multiyear daily
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Moving averages legend: red – 200 day, blue – 100 day, yellow – 50 day

Regular readers of this daily column of mine are no doubt familiar with my high degree of risk aversion as it relates to holding trading positions through any given company’s earnings report. This certainly applies to Nvidia stock.

In after-hours trading on Thursday, Aug. 10, Nvidia shares fell by about 7%, which broke them out of the aforementioned rising wedge formation and resolved the negative divergence between momentum and price that had been building up for the past two months.

Bottom Line on Nvidia

Given the technical damage done by the drop in NVDA stock following the earnings report, traders would be wise to give this stock some time to repair before better buying opportunities may arise again.

How far could the stock fall before finding better support?

While that’s just about impossible to forecast, the low $120s cannot be ruled out as next better support — particularly should the weekly chart scrawl out a notable bearish reversal.

NVDA stock chart daily view
Click to Enlarge

Moving averages legend: red – 200 day, blue – 100 day, yellow – 50 day

Dip buyers will want to be patient before buying NVDA stock at this juncture and only dip a toe if and when a clear bullish reversal (one or two notable buying days) take hold of the stock while respecting that the low $120s may first need to be retested.

Check out Anthony Mirhaydari’s Daily Market Outlook for Aug. 11.

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