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Another outside day in NVDA

Back in March we wrote about the outside day that NVDA had formed (8th March) which was a potential key day reversal. The share posted another potential key day reversal on 20th June as the share made another new all-time high, but then retreated below the previous sessions low. Our argument back in March was that it is always exciting to call a top, but in reality stocks can have deep corrections and then rally further. This proved to be the case then, and it may be the same this time around as well.


There is a case to be made for the stock split (10-1, announced 22nd May)  having goosed the share price and left it vulnerable for a pullback. The folk at The Motley Fool have a nice writeup on previous stock splits and how the share price has performed 6-months, one and two-years later. As they note though, the return data needs to be taken in the context of the dot-com bubble bursting and the global financial crisis!


The chart below shows the daily candle study with 20, 60 and 250-day moving averages and the 14-day RSI. The horizontal lines mark gap support levels, which held nicely after the 8th March drop. A key gap to watch is near $106.50 now (top flat line) with the 23rd/22nd May gap key at the $95 area below this.

The long-term (semi-log weekly) chart below shows that the share price has pushed above the top of the bull channel. Support from the top of the channel (former resistance) is near $96, with the bottom of the very steep channel near $83 important below this. Risk management is key in any investment, the bottom of the long-term channel is near $22!

Again, we are not turning long-term bearish on the share or the tech sector. The March/April decline this year saw about a 22% or so pullback from high to low, a similar drop this time around would put the share near $109.


On a broader look, the long-term NASDAQ 100 chart below (weekly, semi-log) shows that the tech heavy sector is effectively still in the middle of a long-term bull channel. Watch the 13 and 50-week moving averages here for indications of demand picking up if approached, but here too the bottom of the bull channel (14,045) is very far away now.

Our long-term investment view still backs those who play the long game and reinvest dividends through bull and bear cycles. Tactical allocations and trading are different kettles of fish though. NVDA is under a bit of profit taking pressure again. This may or may not turn out to be a big reversal and top. But, for now watching support levels to see if gaps hold up and buyers are drawn out on the pullback ahead of key support again. The implications for the NDX are clear as where NVDA goes, so goes the index it seems! Aiming for dips to offer buying opportunities, again.



Gerry Celaya, Chief Strategist


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