Nvidia’s (NASDAQ:NVDA) leadership in artificial intelligence has attracted significant investor and trader interest. This has contributed to its 750% gains since the beginning of 2023, when Nvidia witnessed a golden cross between its 50-day and 200-day moving averages (MAs). On June 20, NVDA stock topped out. Now, based on recent Nvidia technical analysis, the pullback appears poised to continue while the stock trades below the 50-day MA around $120 per share.
Nvidia’s impressive revenue and earnings growth have undoubtedly contributed to its stock performance.
Yet, as the market anticipates substantial growth in AI-related technologies, what remains to be seen is whether Nvidia stock can continue its uptrend on a technical basis.
Nvidia’s Long-Term Trend Is Intact Despite Correction
After eight consecutive weeks of gains, NVDA stock reversed in June. Momentum lost steam after revisiting deep overbought levels as prices tilted higher, showing divergence. The weekly Relative Strength Index (RSI) signaled this correction by revealing a bearish divergence between prices and the two RSI peaks.
Despite continuing their recent decline, NVDA share prices remain above the 20-week MA, which suggests a bullish long-term outlook.
Declining below the 50-day MA near $120 signals potential pressure in the short term. Yet, Nvidia shares still trade substantially above the 200-day MA, which is around $80 per share. The long-term trend remains up until a cross of the 50-day MA below the 200-day MA occurs, known as the death cross.
Based on Nvidia’s RSI, momentum appears near 42% currently, signaling a potential move to 30%, which could end the short-term decline. Plus, the Stochastic oscillator supports a bullish turnaround now, as it has traded in the oversold zone for a few sessions. Finally, the Moving Average Convergence Divergence (MACD) also shows a negative trend, with the signal line below zero and the histogram in the red.
All of this suggests that in the long term, the strength in Nvidia will continue.
But Nvidia Technical Analysis May Suggest Short-Term Pain
In the short term, NVDA stock may present a selling opportunity based on the current Nvidia technical analysis.
Should prices experience a short-term upside but fail to reclaim $126, this could be a good opportunity to sell NVDA above the 50-day MA. An exit scenario would see de-risking at $100 per share and subsequently at $90 per share.
A tactful risk strategy would involve trailing stop-losses every $5 per share or 5% to protect potential gains while enabling the trade’s downside. Placing an initial stop-loss above Nvidia’s record peak of $142 per share may allow the trade time to work out. This would offer a total starting risk-reward profile of 2.25 times.
However, investors need to exercise caution in the short term due to Nvidia’s recent 3-day morning star pattern and proximity to the 50% RSI. The morning star is known to signal reversals, be they short or longer term, and the 50% RSI level indicates changing sentiment between bulls and bears.
The Bottom Line: NVDA Under Short-Term Risk
Nvidia’s technical analysis presents a bullish picture in the long term. Moving averages suggest an overall uptrend but with signs of slowing momentum. Weekly charts show a natural correction, with RSI and MACD in positive territories unless the MACD signal line continues to point down in the upcoming weeks. Technical analysis of its daily charts indicates potential declines in RSI oversold conditions.
Based on this, shares could be a cautious sell while trading below $126. Investors and traders alike may consider joining the trend down on potential short-term pullbacks. Key resistance levels start at Nvidia’s 50-day MA and range up to $136 per share, depending on different risk-reward profiles.
For those considering a position, higher entry points could offer better risk-reward. However, as prices tilt higher, the probability of Nvidia turning around would also reduce. Implementing a trailing stop-loss of 10%-15% above entry can help manage risk effectively.
On the date of publication, Stavros Tousios did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.
