NVDA Fails at Channel Resistance after Largest Bear Rally YTD
Primary Chart: NVDA's Primary Downtrend Since November 2021 Represented by Parallel Channel and Anchored VWAP from ATH
Summary:
1. NVDA has been in a downtrend since November 22, 2021, over one year ago. The rallies in the one-year downtrend have been impressive. Each time, market participants have bought dips heavily and pushed rallies fiercely upward with help from short-covering players and dealer-hedging unwinds in derivatives markets.
2. Below is a chart showing the bear rallies, each of which has been contained by the downtrend. Each rally represents years worth of gains in calmer up-trending markets excluding the powerful post-2020 bull fueled by easy central bank policy that fostered excessive liquidity in financial markets.
Supplementary Chart A: Percentage Gains for Each Bear Rally Contained by the Downtrend in NVDA
The most recent rally is plainly the largest in percentage terms. It has run about 73.7% higher from the October 2022 low.
3. In early November, SquishTrade posted about the powerful rally and hypothesized that it might run to $150. That prior post is linked here. NVDA ran to $150 and much further to $187.90. But ST cautioned that the rally should be respected, explaining as follows: "And that rally should continue to be respected until it's confirmed to be complete. A good way to gauge the rally off the lows is to use an upward trendline—here a parallel channel is used, and the lower boundary of the channel is the upward trendline off the lows." In other words, until the shorter-term uptrend off the lows was broken, the rally should be accepted. Fighting bear rallies (just like fighting any other market move) is futile. NVDA's uptrend was in fact violated with several whipsaw moves that were bear traps. After adjusting the line for the bear traps, the uptrend line was violated again December 6-7, 2022 with a major whipsaw move (see the false breakdown December 6-7, 2022, below the blue uptrend line from October 2022 lows, shown on the Primary Chart).
4. In short, this bear market has been exceedingly difficult to trade with outsized moves in short periods of time. But on December 13, 2022, it seemed NVDA would break above its down TL from the all-time high and change its downtrend structure. On Tuesday this week, NVDA rose to an intraday high of $187.90, coming close to breaking above the previous major high at $192.74 made on August 4, 2022. But NVDA's price reversed right on cue. It topped and reversed just below that August 4, 2022 high. NVDA's price has now fallen back below the down TL on a linear chart (shown on the Primary Chart). Note that NVDA has remained well below its down TL on a log chart, as shown below:
Supplementary Chart B: NVDA's Logarithmic Chart with a Down TL from the All-Time High in November 2021
5. Given how tricky this market has been, it seems prudent not to jump to any major conclusions about whether the low may be in for NVDA. Instead, it's better to watch the nature of the pullback first. SquishTrade keeps in mind that semiconductors tend to lead the broader equity markets, so keep in mind that NVDA may have made its final low, as counterintuitive as that may seem. That's not SquishTrade's official view, it's just a reminder to stay open and flexible. Take it one step at a time, level to level. For now, it seems a downward move has begun. Will it be corrective or impulsive? Let's wait and see.
6. A while back ST published the following chart showing a possible longer-term target in the $83 area (lets say $80-$85) or perhaps higher depending on where the uptrend line is tagged. This target still seems to be a higher probability area where price could fall in the longer term. That chart will be reposted below (note it is dated late September 2022, but it's still valid now). It's difficult to say when earnings will start deteriorating in earnest due to the coming recession. No one can predict exactly when the recession will hit. Perhaps markets are telling us it's just around the corner. But we have to remain open to all possibilities. However improbable it may be after the hawkish Fed presser this week, one cannot rule out a run up to challenge $200 or even (gasp) $258 (gap fill in early April 2022) before new lows are made. To be clear, this is not SquishTrade's forecast, but it's being discussed as an example of a price path that could confound traders and eventually lead to new lows while convincing many market participants that the October 2022 lows are final. Wouldn't that be painful and confusing and devious—and consistent with the maximum theory of pain in markets?
Supplementary Chart C: Long-Term Trendlines Showing Long-Term Target around $83
7. Shorter-term price targets include $157 to $160 (conservative), and $147-$150, and $133-$138 (aggressive).
8. Note that in addition to Fibonacci, Ichimoku Cloud charts were consulted, and the $150 level serves as weekly support on an Ichimoku Cloud chart (Kijun line for those familiar with those charts). The $140 level is important on daily charts into January 2023.
Supplementary Chart D: Ichimoku Cloud Charts (Weekly and Daily) with Yellow Circles Highlighting Key Supports
9. Remember, this is not a so-called trade "signal" or trade entry. SquishTrade prefers to analyze and describe the broader price environment using technical analysis but leave trading decisions, entries and exits up to each trader and investor's discretion. Traders and investors all have different time frames, rules, risk tolerances, and strategies. So trade according to your own rules, time frame, strategies and risk tolerance. Perhaps this technical analysis may help a trader look a little more carefully for a swing short setup in the coming days or weeks on a bounce to resistance. Perhaps it helps an investor hold off on committing long-term capital until the downtrend structure is negated. In short, this is a technical analysis and overview, not a trading service!
Thank you for reading.
________________________________________
Author's Comment: Thank you for your interest in this technical analysis. The author welcomes comments, discussion and debate (respectfully presented) in the comment section. Shared charts are especially helpful to support any opposing or alternative view. This article is intended to present an unbiased, technical view of the security or tradable risk asset discussed.
Please note further that this technical-analysis viewpoint is short-term in nature. This is not a trade recommendation but a technical-analysis overview and commentary with levels to watch for the near term. This technical-analysis viewpoint could change at a moment's notice should price move beyond a level of invalidation. Further, proper risk-management techniques are vital to trading success. And countertrend or mean-reversion trading, e.g., trading a rally in a bear market, is lower probability and is tricky and challenging even for the most experienced traders.
DISCLAIMER: This post contains commentary published solely for educational and informational purposes. This post's content (and any content available through links in this post) and its views do not constitute financial advice or an investment or trading recommendation, and they do not account for readers' personal financial circumstances, or their investing or trading objectives, time frame, and risk tolerance. Readers should perform their own due diligence, and consult a qualified financial adviser or other investment / financial professional before entering any trade, investment or other transaction.
Summary:
- NVDA has been in a downtrend since its all-time high on November 22, 2022.
- NVDA broke above its down TL on a linear chart briefly in whipsaw move (bull trap) on December 13, 2022. It failed decisively back below. This failure at the down TL shows that the downtrend has further to go, and that the TL remains effective as price exhausted almost immediately after breaking above it.
- NVDA did not take out its prior major high from August 4, 2022, at $192.74. The intraday high from this bear rally was $187.90.
- Short-term targets derived from Fibonacci levels and VWAPs include $157 to $160 (conservative), and $147-$150, and $133-$138 (aggressive). The lower targets depend on the higher targets being reached and broken first, as usual. And all of the targets depend on a break of the March 2020 VWAP (pink) around $165. That level must break before any other targets can be viable.
1. NVDA has been in a downtrend since November 22, 2021, over one year ago. The rallies in the one-year downtrend have been impressive. Each time, market participants have bought dips heavily and pushed rallies fiercely upward with help from short-covering players and dealer-hedging unwinds in derivatives markets.
2. Below is a chart showing the bear rallies, each of which has been contained by the downtrend. Each rally represents years worth of gains in calmer up-trending markets excluding the powerful post-2020 bull fueled by easy central bank policy that fostered excessive liquidity in financial markets.
Supplementary Chart A: Percentage Gains for Each Bear Rally Contained by the Downtrend in NVDA
The most recent rally is plainly the largest in percentage terms. It has run about 73.7% higher from the October 2022 low.
3. In early November, SquishTrade posted about the powerful rally and hypothesized that it might run to $150. That prior post is linked here. NVDA ran to $150 and much further to $187.90. But ST cautioned that the rally should be respected, explaining as follows: "And that rally should continue to be respected until it's confirmed to be complete. A good way to gauge the rally off the lows is to use an upward trendline—here a parallel channel is used, and the lower boundary of the channel is the upward trendline off the lows." In other words, until the shorter-term uptrend off the lows was broken, the rally should be accepted. Fighting bear rallies (just like fighting any other market move) is futile. NVDA's uptrend was in fact violated with several whipsaw moves that were bear traps. After adjusting the line for the bear traps, the uptrend line was violated again December 6-7, 2022 with a major whipsaw move (see the false breakdown December 6-7, 2022, below the blue uptrend line from October 2022 lows, shown on the Primary Chart).
4. In short, this bear market has been exceedingly difficult to trade with outsized moves in short periods of time. But on December 13, 2022, it seemed NVDA would break above its down TL from the all-time high and change its downtrend structure. On Tuesday this week, NVDA rose to an intraday high of $187.90, coming close to breaking above the previous major high at $192.74 made on August 4, 2022. But NVDA's price reversed right on cue. It topped and reversed just below that August 4, 2022 high. NVDA's price has now fallen back below the down TL on a linear chart (shown on the Primary Chart). Note that NVDA has remained well below its down TL on a log chart, as shown below:
Supplementary Chart B: NVDA's Logarithmic Chart with a Down TL from the All-Time High in November 2021
5. Given how tricky this market has been, it seems prudent not to jump to any major conclusions about whether the low may be in for NVDA. Instead, it's better to watch the nature of the pullback first. SquishTrade keeps in mind that semiconductors tend to lead the broader equity markets, so keep in mind that NVDA may have made its final low, as counterintuitive as that may seem. That's not SquishTrade's official view, it's just a reminder to stay open and flexible. Take it one step at a time, level to level. For now, it seems a downward move has begun. Will it be corrective or impulsive? Let's wait and see.
6. A while back ST published the following chart showing a possible longer-term target in the $83 area (lets say $80-$85) or perhaps higher depending on where the uptrend line is tagged. This target still seems to be a higher probability area where price could fall in the longer term. That chart will be reposted below (note it is dated late September 2022, but it's still valid now). It's difficult to say when earnings will start deteriorating in earnest due to the coming recession. No one can predict exactly when the recession will hit. Perhaps markets are telling us it's just around the corner. But we have to remain open to all possibilities. However improbable it may be after the hawkish Fed presser this week, one cannot rule out a run up to challenge $200 or even (gasp) $258 (gap fill in early April 2022) before new lows are made. To be clear, this is not SquishTrade's forecast, but it's being discussed as an example of a price path that could confound traders and eventually lead to new lows while convincing many market participants that the October 2022 lows are final. Wouldn't that be painful and confusing and devious—and consistent with the maximum theory of pain in markets?
Supplementary Chart C: Long-Term Trendlines Showing Long-Term Target around $83
7. Shorter-term price targets include $157 to $160 (conservative), and $147-$150, and $133-$138 (aggressive).
8. Note that in addition to Fibonacci, Ichimoku Cloud charts were consulted, and the $150 level serves as weekly support on an Ichimoku Cloud chart (Kijun line for those familiar with those charts). The $140 level is important on daily charts into January 2023.
Supplementary Chart D: Ichimoku Cloud Charts (Weekly and Daily) with Yellow Circles Highlighting Key Supports
9. Remember, this is not a so-called trade "signal" or trade entry. SquishTrade prefers to analyze and describe the broader price environment using technical analysis but leave trading decisions, entries and exits up to each trader and investor's discretion. Traders and investors all have different time frames, rules, risk tolerances, and strategies. So trade according to your own rules, time frame, strategies and risk tolerance. Perhaps this technical analysis may help a trader look a little more carefully for a swing short setup in the coming days or weeks on a bounce to resistance. Perhaps it helps an investor hold off on committing long-term capital until the downtrend structure is negated. In short, this is a technical analysis and overview, not a trading service!
Thank you for reading.
________________________________________
Author's Comment: Thank you for your interest in this technical analysis. The author welcomes comments, discussion and debate (respectfully presented) in the comment section. Shared charts are especially helpful to support any opposing or alternative view. This article is intended to present an unbiased, technical view of the security or tradable risk asset discussed.
Please note further that this technical-analysis viewpoint is short-term in nature. This is not a trade recommendation but a technical-analysis overview and commentary with levels to watch for the near term. This technical-analysis viewpoint could change at a moment's notice should price move beyond a level of invalidation. Further, proper risk-management techniques are vital to trading success. And countertrend or mean-reversion trading, e.g., trading a rally in a bear market, is lower probability and is tricky and challenging even for the most experienced traders.
DISCLAIMER: This post contains commentary published solely for educational and informational purposes. This post's content (and any content available through links in this post) and its views do not constitute financial advice or an investment or trading recommendation, and they do not account for readers' personal financial circumstances, or their investing or trading objectives, time frame, and risk tolerance. Readers should perform their own due diligence, and consult a qualified financial adviser or other investment / financial professional before entering any trade, investment or other transaction.
Comment:
Look at where NVDA held today—right at the VWAP anchored to Covid 2020 lows (around $165):
Trade closed: target reached:
This was published when price was trading just under $170 (at $169.52). The first target zone was $157-$160. The second target zone was at $147-$150. Both of these have been fully achieved. The third target zone was $133-$138, and price came within $2 of the upper edge of this most aggressive target zone today. It may likely be reached in time as well.
Trade closed: target reached:
Revision to last update:
All three target zones were reached. First zone: $157-$160. Second zone $147-$150. Third zone: $133-138. Price hit $138.84 on Wednesday Dec. 28.
Hurrah for the bears. BTW, SquishTrade is NOT a permabear. Only bearish when trends are. Bearish trading is quite difficult b/c markets are much more volatile. The best trading markets are the slow upward grind of a calm and steady bull. For those who dislike bearish views, ST will not post bearish them forever! When the primary trend structure changes, so will the technical analyses. And the bullish trades will no longer be tricky short-term countertrend plays into resistance. They'll be better hopefully. Bear markets are actually much harder to trade than bulls -- in part b/c 98% of capital is "long only" and in part because of options markets, short-covering dynamics, etc. Look no further than the series of rallies in NVDA in this bear market. The last one from mid-October to mid-December 2022 was 70%+ in a few weeks / couple of months! This sort of action can annihilate bears, even those with excellent bearish macro and technical arguments.
All three target zones were reached. First zone: $157-$160. Second zone $147-$150. Third zone: $133-138. Price hit $138.84 on Wednesday Dec. 28.
Hurrah for the bears. BTW, SquishTrade is NOT a permabear. Only bearish when trends are. Bearish trading is quite difficult b/c markets are much more volatile. The best trading markets are the slow upward grind of a calm and steady bull. For those who dislike bearish views, ST will not post bearish them forever! When the primary trend structure changes, so will the technical analyses. And the bullish trades will no longer be tricky short-term countertrend plays into resistance. They'll be better hopefully. Bear markets are actually much harder to trade than bulls -- in part b/c 98% of capital is "long only" and in part because of options markets, short-covering dynamics, etc. Look no further than the series of rallies in NVDA in this bear market. The last one from mid-October to mid-December 2022 was 70%+ in a few weeks / couple of months! This sort of action can annihilate bears, even those with excellent bearish macro and technical arguments.
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