Nvidia Charts Hint at Price Weakness, So Tread Carefully


Nvidia Corp. (NVDA) sold off sharply Thursday night in reaction to its guidance and “crypto-related OEM revenue drop.” NVDA opened around $250 this morning. I looked in early May at the charts of NVDA, which James “Rev Shark” DePorre also writes about this morning. At that time, I wrote: “NVDA is very close to an important upside breakout. It is very tempting to go long ahead of a move up, but despite our fancy indicators and market experience we really do not know what tomorrow brings. Aggressive traders could go long NVDA above $256, risking below $240 looking for gains to the $300 area.”

With the benefit of 20/20 hindsight this morning, we can see NVDA rallied to a new high in June but that a number of bearish divergences appeared. Traders would have been stopped out in late June as prices broke below the May low. What should we be doing today about Nvidia, which is a holding in Jim Cramer’s Action Alerts PLUS portfolio?

In this daily bar chart of NVDA, below, we can imagine NVDA trading below the slightly declining 50-day moving average line. The 200-day moving average line is still rising and intersects down around $232 or so. Prices made a high in May and then a higher high in June, but look at the movement in the 12-day price momentum study in the bottom panel – it makes a lower high for a bearish divergence. Another bearish divergence can be seen from the volume pattern and the On-Balance-Volume (OBV) line. From February to August the volume peaks are lower and lower. Chart watchers like to see volume increase in a rally to confirm the advance, but that is not the case for NVDA. The OBV also made its high in February.

In this weekly bar chart of NVDA, below, we can see that prices are still above the rising 40-week moving average line. A weekly close below $235 or so would break this line. The weekly OBV line is positive, unlike the daily line. In the lower panel we can see the 12-week price momentum study, which shows a bearish divergence from July of last year.

In this Point and Figure chart of NVDA, below, we can still see an upside price target. The pre-market trading is not posted, but a decline to $240.92 would be need to weaken this chart.

Bottom line strategy: My long recommendation would have been stopped out in late June, but if you are a trader and still long NVDA I would think about selling if prices close below $240 — the recent low. Investors should be concerned if we make a weekly close below the 200-day moving average line.

2018-08-17 06:46:00

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