For market leader Nvidia (NASDAQ:NVDA), today’s much healthier but well-satisfied trading environment means NVDA stock isn’t a gift that’ll keep on giving in the near-term. Let me explain.
It’s not Christmas, but following the extended Easter holiday weekend, pleasant-sounding headlines have greeted anxious investors to start the week. Reports out Monday morning show the novel coronavirus outbreak is seeing signs to support a successful flattening of the curve in the U.S and globally.
Meanwhile, oil producers led by Saudi Arabia and Russia also finalized a welcome production cut deal. But the markets aren’t rallying. Monday’s positive drivers come on the heels of last week’s massive 12% rally in the S&P 500 and sorely-needed price confirmation for an emerging bull market.
The problem near-term is the broad-based, large-cap bellwether has quickly pivoted from a record-breaking (and oversold) corrective plunge to overbought rally after gaining almost 28% from its bear market low set exactly three weeks ago.
And for market leader Nvidia, whose shares have gained nearly 41% and easily outperformed both the major indices, as well as large-cap semiconductor peers Intel (NASDAQ:INTC) and Advanced Micro Devices (NASDAQ:AMD), buying NVDA stock today looks even more questionable near-term, both off and on the price chart.
NVDA Stock Weekly Chart
Source: Charts by TradingView
Nvidia’s long-term growth story is a compelling one. After all, the chip outfit is well-positioned to take advantage of secular trends in artificial intelligence, data centers, autonomous driving and gaming.
And nobody denies that. But right now is also not the time for investors to chase NVDA stock’s price momentum. I’m not alone in thinking this either.
Investment boutique Craig Hallum issued a research note this morning lowering shares of Nvidia from “Buy” to “Hold.” The firm also dropped its price target to $300 from $325 on ‘valuation concerns’ tied to a more balanced risk/reward equation after the rally in Nvidia and downwardly-revised 2021 sales estimates for Nvidia’s gaming market.
Analyst Richard Shannon recommends investors wait for a more attractive entry in NVDA stock. And in this strategist’s observation, the warning is also solid tactical advice on the price chart in today’s vastly-improved market environment, given that said environment is overbought in the short-term.
Technically, the worry is Nvidia’s bearish, shooting star-topping, candlestick formation developed over the past week. The pattern straddles the 62% retracement level and the stock’s prior uptrend line. For the time being, that combination should act as price resistance and favor lower prices.
Bottom-line, if NVDA confirms the reversal candle by trading beneath last week’s low of $252.93, it’s chances of creating a quick but healthy opportunity to pick up shares inside the range from $218 to $230 are greatly increased. This area marks a 50% to 62% retracement of the past month’s rally. And given the circumstances off and on the Nvidia price chart, that looks infinitely more welcoming and without being too wishful versus fearfully chasing shares today.
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.
