Technical Analysis and Market Entry: Nvidia (NVDA) – Bigger Price Dump Possible

  • Nvidia (NVDA) has enjoyed a strong recovery this year, gaining as much as 50% after brutal selling towards the end of 2018.
  • Despite the rebound, current price action has formed a bearish flag pattern, subject to a deep potential fall.

NVDA: Recent Price Action

Nvidia shares are back on the move south after a decent rally. The price has been edging lower for the past two consecutive weeks, dropping as much as 7% within the period. NVDA bulls were enjoying a solid run to the north, making an impressive start to 2019. Shares had gained over 50% this year in what was a convincing attempt of recovery.

Brutal End of 2018

The price faced extremely challenging times at the back end of 2018, free-falling from October to December. During the noted period a loss of some 56% was observed, this coming after printing an all-time-high. The heights of $292 were achieved before the sellers piled in and participants cashed in on profits.

While there didn’t appear to be one particular catalyst for the plunge, a large chunk of the loss seemed to coincide with the broader market sell-off. Also, weak guidance was issued by large chip companies, which led investors to take a bearish bias against much of the semiconductor industry as a whole.

Furthermore, the slowdown across the cryptocurrency space may not have helped, given the decent sized revenues that have been reported from Nvidia related to crypto/blockchain. According to RBC analyst Mitch Steves, Nvidia has generated $1.96 billion in total revenue related to crypto/blockchain. It is a massive discrepancy to what the company officially reported ($602 million). The calculation by Steves came after full digestion and study into the company’s earnings report.

Bearish Flag Formation

NVDA weekly chart.

The noted grind higher seen this year for the stock has resulted in the price forming a bearish technical structure. A flag pattern has been produced with the recovery north, suggesting there could still be further explosive moves back south. The pole of the noted flag consists of the October to December fall.

There are a few confluences to back a short bias at present; a rejection occurred at the upper acting trend line. Before the price entered the current two-week losing streak, a bearish evening star candle formation was printed. Typically, the star tends to indicate a change in trend, which at present supports the case.

Trade Recommendation

Given the most recent technical rejection and price structure, short-selling NVDA looks very much attractive. The confluence of the evening star, the bearish flag pattern and the respect the price gave to the upper acting trend line point to the downside.

Entries should be eyed at the current territory, between $190-$180; with the first target eyed at $126.15. A breakdown of this region, which is where the price staged its rebound, could leave the door open to more significant selling. Lastly, additional targets would be eyed within the $100-$80 price range, with stops being placed just above the flag formation at $204.

Featured image courtesy of Shutterstock.

Author:
Ken has over 8 years exposure to the financial markets. During a large part of his career, he worked as an analyst, covering a variety of asset classes; forex, fixed income, commodities, equities and cryptocurrencies. Ken has gone on to become a regular contributor across several large news and analysis outlets.