Some may see the “tempest in the teacup” for Nvidia (NASDAQ:NVDA) as having played itself out. But another fragile, at-risk cup in NVDA stock is what should have investors’ attention today.
Let me explain.
A week ago bearish reactionary finger pointing was at its finest on Wall Street. And from A-to-Z, or rather, Apple (NASDAQ:AAPL) to Zoom Video (NASDAQ:ZM), the change in sentiment got the best of blue-chips most everywhere … including semiconductor chip giant NVDA.
It’s no secret of course that the S&P 500 jolted into a corrective swan dive on debt fears Chinese real estate kingpin Evergrande would turn the global property market into a house of cards.
Throw in a side of U.S. debt ceiling worries and confident investors’ stoking double-digit gains and all-time-highs in the broader market, it proved a perfect storm for bearish seasonal tendencies to come home to roost. Well, for a brief moment at least.
NVDA Stock: Accessing the Reaction
Nevertheless, NVDA shares did pay homage by falling as much as 5.5% early last week.
A week later and the worst of Wall Street’s fears have largely cooled. However, seeing NVDA stock as an attractive purchase for the portfolio remains a riskier proposition.
The thing is that Nvidia’s stock has other issues beyond this past week’s faded dislocations. And those challenges aren’t the popular cooler talk of an ongoing industry-wide chip shortage or China’s government banning transactions and circulation of Bitcoin (CCC:BTC-USD) on its shores.
As the Motley Fool notes, those factors are more of a combined tempest in a teacup for Nvidia. That’s the good news.
The bad news and real problem facing NVDA investors are NVDA investors.
The fact is this year’s eye-popping return of 65% on top of 2020’s massive gains have led to a wildly inflated valuation in shares. And even by the chip titan’s richly priced standards, the generous pricing is simply too large to ignore.
And that’s not just us worrying either. There’s also an at-risk Nvidia price chart.
Nvidia’s Weekly Price Chart
Source: Charts by TradingView
Technically, buyers could inspect the weekly NVDA chart and be decidedly upbeat. And it might seem hard to argue otherwise.
The stock did successfully challenge its recent cup breakout and test of a minor trendline. What’s more, shares rallied strongly off their lows to finish up 0.83% last week.
Also a positive for many recent buyers, Nvidia’s pattern-based buy decision out of the weekly cup formation remains in play.
At its lows, NVDA stock was still less than 1% beneath the cup’s initial purchase signal of $208.71. That’s nowhere close to commonly accepted risk of 8% to 10% for that type of trade in a name like Nvidia, in exchange for an upside profit target of 30% or more.
Importantly though, stocks aren’t traded in a vacuum. And, today, the circumstances specific to Nvidia shares matter more than blindly following a methodology to the letter.
While NVDA has never been a stock to give a dyed in the wool value investor a fair shake, it may be time to take a cue from that camp. Ultimately, Nvidia’s generous rally has taken shares up more than 400% the past 18 months and in tow, to decidedly steep record valuations.
So as some investors may be tempted with narratives of unstoppable growth, the timeless advice to sell when most remain obviously greedy is wise, price-conscience instruction here.
On the date of publication, Chris Tyler holds long positions (either directly or indirectly) in Grayscale Bitcoin Trust (GBTC) and Advanced Micro Devices (AMD). The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Chris Tyler is a former floor-based, derivatives market maker on the American and Pacific exchanges. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.