Nvidia (NASDAQ:NVDA) stock was a Wall Street darling not too long ago. But lately it has lost its shine and now cannot hold a rally long enough to flip this massive down slide that started last year. Year-to-date, Nvidia stock still lags the chip champ Advanced Micro Devices (NASDAQ:AMD) by more than half.
On its way up to $290 per share, NVDA rode the Bitcoin craze up fast. But as the Bitcoin mining headlines faded, the Nvidia stock price fell off a cliff. Ironically, at the highs of almost $300 per share the consensus among experts was that NVDA was a must-buy. Now that it’s a lot cheaper with almost all the same fundamentals that supported the rally, it’s hard to find any fans of it on Wall Street.
Fundamentally speaking NVDA stock is not cheap at 45 price-to-earnings ratio. But owning it at these levels for the long term is not likely to be a giant debacle. This is especially true for patient investors. The company is well set to capitalize on several segments for the next decade of tech.
Shorter-term, it is important to pay attention to what the clues in the Nvidia stock chart suggest. There are definite levels that stand out from the latest price action.
What You Should Expect From NVDA Now
Traders reacted positively to the earnings report this week. NVDA spiked 15% and is now trying to hold the rally in order to extend it. It is important for it to hold higher-lows and break out from $180 per share. If the bulls are able to do this, Nvidia stock should trigger a bullish cup-and-handle breakout to target $200 per share or higher.
This won’t be easy and there will be resistance, first at the neckline, then at $194 per share. These two levels have been significant prior failure zones. So the onus is on the NVDA stock bulls to prove that they can hold the trend of higher-lows in order to attack the neckline that has so far proven so elusive.
For that to happen, Nvidia will need the help of the general markets. This week is another potentially pivotal week for stocks, as today we get the Federal Reserve minutes from their last meeting. And on Friday we hear from the Chairman himself. Recently Fed head Jerome Powell’s effect on the markets has been very violent. So coming into the event on Friday the NVDA trade is somewhat binary. Short term, it has more gambling than investing in it.
The fear index — the CBOE Volatility Index (INDEXCBOE:VIX) — is still elevated but nowhere near critical levels. Only days ago it was pushing $25 per share and now it’s below $20. So there is no obvious ramp up in fear, even as equities hang this close to all-time highs in the S&P 500 for example.
In other words, this market is indeed climbing the wall of worry. And with a little bit of luck, the rally continues so that Nvidia stock can actually breakout of this funk and recover some old glory.
Depending on the portfolio, it is okay to hold or buy NVDA here in anticipation of the breakout as long as investors place proper stops below.
Alternatively, instead of buying upside hope, we can sell downside risk into the Nvidia stock price. For example, you can sell the Dec $130 put and collect $2 per contract to open. This way you don’t even need a rally to profit as long as Nvidia stock stays above that level, you are a 100% winner. The breakeven from that trade would be at $128 per share. Below it, you would own the shares and accrue losses.
Regardless of what you decide to do, you should do it in tranches. This leaves room for adjusting the risk if and when it’s needed.