Nvidia (NASDAQ:NVDA) fell from grace last October into a 57% correction where Nvidia stock lost more than half its value. At the peak, the love for NVDA on Wall Street was extreme. All experts agreed at the time that it belonged in every portfolio. But what ensued was a tremendous correction that overshot to the downside. After all the damage was done, Nvidia stabilized at the breakout neckline from May of 2017.
Since then, the stock has been setting higher-lows in an effort to recover prior glories. But it still has a long way to go.
NVDA didn’t fall alone, the whole stock market also tripped at the same time in October of 2018. But the difference is that the indices are back to new all-time highs, whereas Nvidia stock just got back to the 50% retracement level.
And for those who follow Fibonacci, this is not an ideal place to start a bullish position. Even though it is in a breakout off $140 per share, going into its earnings management will need to deliver a very bullish outlook for the stock to rally much further from here.
If I have profits in the stock, I would lock them in going into the binary event. Wall Street investors are fickle around earnings. And the subsequent moves more often than not involve sentiment rather than facts.
Then there is the matter of geopolitical risk. The chip stocks are very sensitive to the rhetoric from the economic war with China. And lately the politicians have been cordial on the subject, but this can flip on a dime. However going into an election season, the U.S. is more likely to loosen the reins on the deal with China. So what has been holding down the sector and stocks like Nvidia, Advance Micro Devices (NASDAQ:AMD) and Intel (NASDAQ:INTC) may be abating.
Nvidia Stock: Timing Is Crucial This Coming Week
There is more upside to come in NVDA stock, but it’s more about timing. The zone through $220 per share is resistive. But the reins are in the hands of the bulls for as long as it stays above $180 per share. So even if there is a dip on the earnings event, it would make for a good entry point for a bounce. And maybe the next leg higher would break through the resistance above. The important thing is that technically it continues to set higher-lows in order to continue the bullish progress in the stock. It is also important that management doesn’t deliver surprisingly bad news.
AMD has been the chip champ as it just set new highs. Intel comes in a close second as it has completely recovered from last year. Nvidia is still lagging as it needs another 40% rally from here to reach its October accident scene. So maybe it has a catch-up play in the making but one that could be made or broken the morning after the earnings.
This is a good company with good products in an industry that will be in high demand for decades. But it is not cheap. It has a price-to-earnings ratio of 54 and sells at 11 times sales. This is three times more expensive than INTC, but gives AMD a run for its money there. They are both frothy, so there is some fat to trim, especially if the headlines sour once more.
Nicolas Chahine is the managing director of SellSpreads.com. As of this writing, he did not hold a position in any of the aforementioned securities. Join his live chat room for free here.
