Monday’s market performance was oh-so-bullish. If you sorted a watch list of the most actively traded stocks by percentage change after the bell, do you know what you would have found? Tech stocks, tech stocks and more tech stocks. The technology sector dominated the leaderboard with over a dozen tickers gaining well north of 4%. Today, I’m going to show you why that matters for Nvidia (NASDAQ:NVDA), and how you can capitalize on a continuation of NVDA stock’s glorious uptrend.
Yesterday’s surge has to be demoralizing for bears hoping that July 13’s nasty high volume bearish engulfing candle in the PowerShares QQQ Trust (NASDAQ:QQQ) was the start of a bigger shift away from tech.
Tech Is Still the King
Distribution days like last Monday often spark deeper corrections, but not this time! All we saw was a few days of mild rotation into some lagging sectors and then yesterday’s powerful rally arrived to thrust technology back on top.
What’s particularly impressive is how willing traders are to jam the likes of Amazon (NASDAQ:AMZN), Tesla (NASDAQ:TSLA) and Microsoft (NASDAQ:MSFT) higher ahead of earnings, even after another marquee large-cap tech stock, Netflix (NASDAQ:NFLX), tumbled after its report. Apparently, the specter of underwhelming numbers isn’t scary enough to keep buyers at bay.
The undying bid beneath the technology sector is one of the underlying narratives supporting a bullish bias on NVDA stock.
But it’s not just the overwhelming bullish tone of the sector that’s benefiting Nvidia; it’s also the semiconductor industry’s performance. As shown below in the Vaneck Vectors Semiconductor ETF (NYSEARCA:SMH) chart, semis popped 2% on Monday and find themselves in a healthy and consistent uptrend. All major moving averages are climbing beneath the stock in support of bulls, and the series of higher pivot lows since March reveal just how aggressive buyers have been in swooping in on dips to keep the trend alive.
Fighting the trend is ill-advised. Its continuation is much more likely than a reversal. And that can only bode well for a stock that many view as the leader of the semiconductor industry.
NVDA Stock Charts
Nvidia’s chart shows a stock that has more than doubled off the March lows. While most stocks saw momentum fade after the initial “V” shaped bounce, NVDA stock has been able to keep up the pace for four months now. Skeptics will say the momentum is unsustainable, and they’re right.
Even if the most epic economic recovery in history unfolded over the next year, Nvidia still couldn’t keep doubling every few months. But that doesn’t mean its uptrend has to end. Plus, as we’ve seen time and again in recent months, trying to guess when a powerful uptrend will end is a fool’s errand.
Last week’s pause allowed the 20-day moving average to catch-up and overbought conditions to ease in Nvidia’s daily chart. Monday’s 3% rally arguably signaled the start of the next upswing. While some traders might wait for a break above the pivot high at $431.69, I’d rather buy now than have to chase after another $10 move higher.
Implied volatility is starting to drift higher, and it will likely continue to do so ahead of the next earnings report that’s slated for mid-August. I’d rather be a buyer of options here than a seller. Couple that with Nvidia’s high share price of $420, and bull call spreads are an excellent way to go here.
The Trade: Buy the Sep $430/$450 bull call spread for around $7.70.
You’re risking the initial $7.70 for a potential gain of $12.30. If you want a cheaper trade you could modify to a $10-wide spread such as the $430/$450.
Tyler Craig is a member of the Chartered Market Technician’s Association and holds the CMT designation. His entire adult life has been dedicated to helping individuals learn how to trade as an elite instructor and personal mentor. To join his team and the best trading community on the planet, click here. At the time of this writing, Tyler didn’t hold positions in any of the aforementioned securities.