The market may have investors rightfully spooked and asking the question of whether the broader averages have topped. Still, in a market made up of stocks, Nvidia (NASDAQ:NVDA) stock is one positioned for longer-term success. And a “still healthy” NVDA stock is worth monitoring for a risk-adjusted buy into your portfolio in the days ahead.
Let me explain.
Blame it on what you will. And most likely that finger will be firmly pointed at the coronavirus from China for upending what had been a very good start to 2020 on Wall Street. Friday’s broad-based slashing, which resulted in the Nasdaq Composite backtracking nearly 2%, was directly tied to elevated fears surrounding the virus. And Nvidia certainly wasn’t immune.
To close out the trading week, shares of Nvidia faltered by a market-leading 4.75% on the session. Among large-cap semiconductor peers only Advanced Micro Devices’ (NASDAQ:AMD) tumble of 7% was larger. To be sure, it has fast become a risk-off environment for Wall Street and particularly so for tech outfits and semiconductor companies with their share of larger overseas manufacturing and supply chain risks.
Still, and as Monday looks to usher in more coronavirus-driven selling pressure, it’s important to recognize the potential buying opportunity in the days ahead. Nvidia is still a name to buy on constructive price weakness. This type of strategy allows investors to more effectively purchase growth at an attractive discount.
The fact is nobody knows how large of a problem the coronavirus really is. Well, almost.
The White House’s resident meteorologist did move from a Sharpie weather map of Alabama to a recent tweet that warmer seasonal weather will contain the disease. What is known is just over a week ago, Nvidia delivered a terrific quarterly confessional and is well positioned for continued growth longer-term.
Nvidia’s earnings release offered improving profits for the first time in four quarters, which also handily topped Street views. Additionally, those gains weren’t the result of cost-cutting and what have you. The solid results were bolstered by its stronger-than-forecast AI-driven data center revenue growth and modestly light, but still solid double-digit sales growth from its gaming business. Lastly, while Nvidia’s management acknowledged it’s too early to foresee the impact from COVID-19, the company’s above-views sales guidance for Q1 was calculated with those supply and demand challenges in mind. There was no mention of the weather.
Examining the Weekly Chart for NVDA Stock
Source: Charts by TradingView
When I last wrote about Nvidia for InvestorPlace, it was in December as the stock changed hands for around $224 a share. The observation was that Nvidia was in position to move higher despite challenging resistance from the 62% retracement level in its deep and year-long corrective cup-shaped base. And Nvidia did rally strongly. But and without disrespecting the market or the seriousness of the coronavirus, there are reasons to see Nvidia’s largest gains as still in front of investors in the long run.
Technically, Nvidia shares first established a classic handle consolidation above the 62% resistance level. From there, a rally out of the pattern was quickly followed by an earnings-driven cup breakout of NVDA stock to fresh all-time-highs. In total, the price action has been nothing short of very bullish. And despite Friday’s large decline, even momentum pattern buyers using a cup entry are still marginally profitable. So, where does that leave today’s investors or would-be investors?
For those that are long shares, the chart dynamics change enough that if Nvidia drops beneath last week’s candle low of $284.86, exiting the position is prudent. In the short-term, the fact is that kind of price action sets the stock up as a higher-higher double-top formation as last week’s shooting star candlestick is confirmed. And right now, that kind of selling pressure deserves investors’ respect.
In closing, I don’t anticipate Nvidia will see another large correction similar to 2018-2019. But even a more modest 15-20% decline in a stock that has shown a historical knack for volatility puts shares back near $253-$270. And technically, as illustrated by the weekly chart, that’s a much more supportive area for entertaining the purchase of growth at a discount. This is especially true as a test of the stock’s pre-earnings handle pattern and trend-line come into play.
Disclosure: Investment accounts under Christopher Tyler’s management do not currently own positions in in any securities mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.
