How the Mighty NVDA Has Fallen

SquishTrade Updated   
Primary Chart: Parallel Channel Containing NVDA's Bear Market Price Action Since Its All-Time High

ANALYSIS SUMMARY: Trading NVDA at the middle of its downtrend channel is tricky and uncertain, and should be avoided. Nevertheless, the overhead gap has a likelihood of being filled up to 150.00 USD. But the 8-day EMA will have to be recovered first. Ultimately, however, NVDA should see new lows—probably within a few weeks, and certainly with in a few months.

NVDA has fallen -61.7% from its all-time high. Some investors, with a 3-10 year view, may be interested in buying here for the long-term with the understanding that its GPU and chip business will continue to dominate and be a future tech leader. Others may wish be patient and allow the market to do its work of price discovery until it's complete.

For traders, NVDA does not present a good risk-reward setup in either direction. It's sitting right in the middle of a parallel channel that has contained price action throughout the downtrend since NVDA's all-time high in November 2022. Some of the reasons trading is extremely tricky for NVDA right now include:
  • Choppy price action in the indices, including SPX (also traded as SPY ) and NDX (also traded as QQQ );
  • On September 1, 2022, NVDA's price took out the July 5, 2022, low to the downside, which implies that the wave structure could likely lead to further downside ahead.
  • Challenging macroeconomic and monetary-policy environment, with a so-called Fed-pivot unlikely until inflation can be brought far below current levels—5-6% inflation, while encouraging given 8-9% earlier this year, will not effect a Fed pivot.
  • OPEX on Friday this week, leading to unexpected moves in price due to dealer and market-maker hedging, which can make directional trades more difficult than normal.
  • unfilled gap all the way up to $150.00, and given choppiness and recent upward momentum in indices, NVDA is unlikely to move down to new lows in a straight line.

Consider the following chart as well, which shows the volume ledges for NVDA. The resistance and supply overhead is extraordinary. Unless an investor is willing to wait potentially a very long time for NVDA to recover—and for institutions to step in and do the dirty work of putting in a final low—it may be best to watch and wait.

Supplementary Chart: 8-day and 21-day MA and Volume Ledges
Notice on the Supplementary Chart how the 8-day EMA has not yet been broken to the upside yet despite impressive strength in equity indices the last several days since the low on September 6, 2022. NVDA may break above the 8-day EMA to fill the gap. For the reasons listed above, trading NVDA right now is tricky and unpredictable.

Lastly, consider the VWAPs from all the major highs during this bear market. They're kind of foreboding and bearish, all towering far above the price. Gambling on anything other than a short-term pop or bounce in price is a low-probability bet.
Supplementary Chart B: NVDA's VWAPs placed at Major Swing Highs

Those with a fundamental analysis viewpoint may wish to rely on that instead, understanding that semiconductors and GPUs will drive AI and computers for decades to come. But the technicals suggest this fundamental view may not work out to reverse NVDA's downtrend for quite some time. Of course, bear rallies can occur in bear markets, and these can be sharp and powerful. But a fundamental-analysis viewpoint is essentially a disagreement with the market's price action, a tricky proposition given the market's impressive ability to discount all available information. Fundamental analysts believe that the market has mispriced a security or instrument, and that eventually, the market will agree with the analyst's view. Sometimes this works out well for careful analysts with billions available for research (think Warren Buffett and Berkshire Hathaway). For the rest of us, perhaps we should follow the price action for now. The author credits veteran fund manager and technical analyst David Lundgren as the source of this intelligent argument on fundamental analysis, which he has frequently has cited in interviews and publications.


Please note that this technical-analysis viewpoint is short-term in nature and 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.

Author's Comment: Thank you for reviewing this post and considering its charts and 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.

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.
This post forecasted the following (summary version): "Trading NVDA at the middle of its downtrend channel is tricky and uncertain, and should be avoided. Nevertheless, the overhead gap has a likelihood of being filled up to 150.00 USD. But the 8-day EMA will have to be recovered first. Ultimately, however, NVDA should see new lows—probably within a few weeks, and certainly with in a few months."

It appears that NVDA has confirmed that the bearish downtrend is valid. It just made a new low at 131.90 (at 3:29 EST in the US). The prior YTD low was 132.70.

So the portion of the forecast / analysis validating the downtrend and calling for new lows was correct.

The portion of the forecast / analysis calling for choppy, tricky price action with a gap directly overhead was not correct. It was reasonable to draw this conclusion, though, given how indices have been chopping a great deal, and given the gap overhead. It was also incorrect to conclude that NVDA did not present a good risk-reward directional trade in the middle of the channel given the choppiness and the gap-fill overhead—a short at the 8 EMA today might have worked out nicely thought shorting at the 8 EMA is on the aggressive side.

In any event, this author wrote that the 8 EMA must be reclaimed before the gap at 150 could be filled, and the 8 EMA was never reclaimed—price failed right at the 8 EMA on the daily chart.

Next few weeks: At this point, it seems likely that price is headed to even further new lows near the bottom of the parallel channel. Before the bottom of the channel there is strong support at 115-116, so that is a level to watch too.
NVDA keeps falling consistent with the post's thesis from a week ago that NVDA should "see new lows within a few weeks." It continues to make new lows and fails to catch a bid.

Buying stocks in a steep downtrend = knife catching. A while back, at prior lows this year, many were eager to buy at 140-145 thinking price surely could only go up from here. But knife catching, even with cutting edge tech companies, should be avoided except for those with a fundamental basis for buying and a very long-term time horizon.

Long-term logarithmic trendlines can also be watched for support, assuming this bear market continues into 2023 after another one or two more spectacular bear rallies.

Trade closed manually:
On the date of this post, NVDA closed at $139.37. Price has since fallen about 12.3% to $122.20. As mentioned in the last update, the central thesis of this original post was that NVDA would find new lows within the coming weeks. At this point, further lows should be reasonably expected, but given oversold conditions in markets generally, sharp rallies could also be expected at any time.
Therefore, this post will be closed.


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