Nvidia: Bearish Reversal or Further Bullish Consolidation?
Initial Consolidation and Breakout
On April 13, 2021, NVDA broke above a cup-shaped consolidation with a resistance level / pivot of approximately $615 / share. It reached a new all-time high of $648.57. It then began pulling back. Until today, a cursory glance suggested that the bullish consolidation may simply be progressing even with the pullback, forming the handle portion of the well-known "cup with handle" pattern.
The Broader Selloff in the Market
Today, May 4, 2021, growth stocks—and especially technology growth stocks—on the United States exchanges sold off steeply. This was reflected in daily price declines of many well-known ETFs reflecting such stocks' performance, e.g., NASDAQ:QQQ (-1.80%), AMEX:FNGU (-5.13%), AMEX:ARKK (-3.10%), AMEX:ARKW (-2.71%). Many leading growth-oriented and technology stocks also showed substantial price declines for today. A few key examples, along with their percentage price decline at the market's close, are as follows: NYSE:SQ (-5.13%), NASDAQ:UPST (-5.99%), NYSE:SNAP (-5.73%), NYSE:DT (-4.03%), NYSE:NIO (-4.07%), and NASDAQ:Z (-3.38%). And the intraday declines were even more substantial than the decline reflected by the closing price.
Nvidia's Price Decline
Nvidia was no exception today despite having an outstanding record of sales and earnings growth. In its most recent quarter, Nvidia revenue and EPS grew 61% and 64% YoY respectively. In the quarter preceding the most recent one, Nvidia's sales and EPS rose 50% and 76% YOY respectively. So fundamentally, its is performing exceptionally well. This is true even if investors dislike the added uncertainty regarding Nvidia's ARM acquisition resulting from the news of the British government's review and investigation into this acquisition as a matter of national security, which is an issue that has been known for over two weeks (www.bbc.com/news/business-568040...).
When the selloff in a strong stock does not appear company-specific but affects all stocks within a broad category (e.g., technology or growth), the focus becomes whether the technicals will continue to support the uptrend.
Support at Critical Levels
In the initial phase of its pullback from a peak of 648.57, NVDA found support at its 21-day EMA . But Nvidia has now broken through its 21-day EMA to the downside. The 21-day EMA is 593.58 as of the close today. No significant negative news about the stock hit the news cycle today or yesterday, so one can reasonably conclude the price action was related to the weakness across the entire technology and growth sectors today.
Nvidia found support at its 50-day SMA , however. Sometimes, it is helpful to cut out some of the noise from the intra-day action or even the daily movements by pulling up a weekly chart. The weekly chart shows NVDA found good support at its 10-week SMA as well (a moving average that is a near equivalent to the 50-day SMA ). In fact, the intraday low during the height of the selling was $560.41, and the 10-week SMA is just below that level at 559. 01 .
Fibonacci Levels
I've drawn the the Fibonacci retracement levels for Nvidia's recent breakout move. Based on those levels, the key supports were $577.55 and $555.62. Nvidia violated the first of those levels today but did not break through the $555.62 level. The price closed at 574. 05 . But in after-hours trading (as of 6:30 p.m. Eastern Standard Time U.S), Nvidia to be retaking the $577.55 Fibonacci-retracement level, as its price is 577.75 as of this writing.
Volume Analysis
Since hitting its all-time high of approximately $648, Nvidia's price decline has remained controlled with light volume . This is a positive for investors who hold long stock or options positions on the stock. Today, Nvidia's weekly chart (the lower of the two charts above) shows a steep decline in the volume oscillator's line, revealing that the 5-week moving average of volume is lower than the 20-week moving average of volume . Along with the volume histogram at the base of the weekly chart, this reveals that volume has been lighter and declining during Nvidia's price decline, a positive for long-positions in the stock. The daily volume oscillator, however, does show an uptick in the last few days, likely due to the heavier-volume selling today. This warrants caution. However, sometimes the weekly chart cuts out some of the noise from the daily price action, and the weekly chart's volume oscillator presents a more favorable picture than the daily volume oscillator.
Cautiously Bullish Outlook
Nvidia could continue breaking out again. It is a fundamentally excellent stock. But technically, it is struggling a bit today. And the choppiness and weakness in the technology sector is challenging. So caution is warranted, but don't give up on Nvidia just yet. Stocks can often retake their pivots from consolidations after failing. Further, the price action held above the key 50-day SMA and the 10-week SMA , as well as the $555.62 Fibonacci level. But those levels should continue to be watched closely in the coming days and weeks.
On April 13, 2021, NVDA broke above a cup-shaped consolidation with a resistance level / pivot of approximately $615 / share. It reached a new all-time high of $648.57. It then began pulling back. Until today, a cursory glance suggested that the bullish consolidation may simply be progressing even with the pullback, forming the handle portion of the well-known "cup with handle" pattern.
The Broader Selloff in the Market
Today, May 4, 2021, growth stocks—and especially technology growth stocks—on the United States exchanges sold off steeply. This was reflected in daily price declines of many well-known ETFs reflecting such stocks' performance, e.g., NASDAQ:QQQ (-1.80%), AMEX:FNGU (-5.13%), AMEX:ARKK (-3.10%), AMEX:ARKW (-2.71%). Many leading growth-oriented and technology stocks also showed substantial price declines for today. A few key examples, along with their percentage price decline at the market's close, are as follows: NYSE:SQ (-5.13%), NASDAQ:UPST (-5.99%), NYSE:SNAP (-5.73%), NYSE:DT (-4.03%), NYSE:NIO (-4.07%), and NASDAQ:Z (-3.38%). And the intraday declines were even more substantial than the decline reflected by the closing price.
Nvidia's Price Decline
Nvidia was no exception today despite having an outstanding record of sales and earnings growth. In its most recent quarter, Nvidia revenue and EPS grew 61% and 64% YoY respectively. In the quarter preceding the most recent one, Nvidia's sales and EPS rose 50% and 76% YOY respectively. So fundamentally, its is performing exceptionally well. This is true even if investors dislike the added uncertainty regarding Nvidia's ARM acquisition resulting from the news of the British government's review and investigation into this acquisition as a matter of national security, which is an issue that has been known for over two weeks (www.bbc.com/news/business-568040...).
When the selloff in a strong stock does not appear company-specific but affects all stocks within a broad category (e.g., technology or growth), the focus becomes whether the technicals will continue to support the uptrend.
Support at Critical Levels
In the initial phase of its pullback from a peak of 648.57, NVDA found support at its 21-day EMA . But Nvidia has now broken through its 21-day EMA to the downside. The 21-day EMA is 593.58 as of the close today. No significant negative news about the stock hit the news cycle today or yesterday, so one can reasonably conclude the price action was related to the weakness across the entire technology and growth sectors today.
Nvidia found support at its 50-day SMA , however. Sometimes, it is helpful to cut out some of the noise from the intra-day action or even the daily movements by pulling up a weekly chart. The weekly chart shows NVDA found good support at its 10-week SMA as well (a moving average that is a near equivalent to the 50-day SMA ). In fact, the intraday low during the height of the selling was $560.41, and the 10-week SMA is just below that level at 559. 01 .
Fibonacci Levels
I've drawn the the Fibonacci retracement levels for Nvidia's recent breakout move. Based on those levels, the key supports were $577.55 and $555.62. Nvidia violated the first of those levels today but did not break through the $555.62 level. The price closed at 574. 05 . But in after-hours trading (as of 6:30 p.m. Eastern Standard Time U.S), Nvidia to be retaking the $577.55 Fibonacci-retracement level, as its price is 577.75 as of this writing.
Volume Analysis
Since hitting its all-time high of approximately $648, Nvidia's price decline has remained controlled with light volume . This is a positive for investors who hold long stock or options positions on the stock. Today, Nvidia's weekly chart (the lower of the two charts above) shows a steep decline in the volume oscillator's line, revealing that the 5-week moving average of volume is lower than the 20-week moving average of volume . Along with the volume histogram at the base of the weekly chart, this reveals that volume has been lighter and declining during Nvidia's price decline, a positive for long-positions in the stock. The daily volume oscillator, however, does show an uptick in the last few days, likely due to the heavier-volume selling today. This warrants caution. However, sometimes the weekly chart cuts out some of the noise from the daily price action, and the weekly chart's volume oscillator presents a more favorable picture than the daily volume oscillator.
Cautiously Bullish Outlook
Nvidia could continue breaking out again. It is a fundamentally excellent stock. But technically, it is struggling a bit today. And the choppiness and weakness in the technology sector is challenging. So caution is warranted, but don't give up on Nvidia just yet. Stocks can often retake their pivots from consolidations after failing. Further, the price action held above the key 50-day SMA and the 10-week SMA , as well as the $555.62 Fibonacci level. But those levels should continue to be watched closely in the coming days and weeks.
Comment:
NVDA has had risen 72% since the date of this analysis. NVDA had a 4:1 share split, which means that the split adjusted price when this analysis was written was 143.50 approximately.
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