Even a Great Performer Like NVIDIA Can Use a Rest

NVIDIA Corp. (NVDA) has delivered great returns to investors over the past two years. Forget passive investing with index ETFs, if you can find the next NVDA. We reviewed the charts of Action Alerts PLUS, holding NVDA two months ago, and prices were temporarily weak.

We wrote more of a tutorial on technical analysis: “What is your cost basis? If you are long NVDA from below $110, then I probably wouldn’t panic. If you are long from around the last dip or in the $140s, then you need to think about how you would react or feel if prices broke below $140…When a stock position goes from a profit to a loss, a different mindset takes over. Offense versus defense. Can you make a decision to exit and come back in at a better trade location or will you get hung up on tax issues, and this and that?”

This morning, we can go back to our usual format and forecast. Let’s check the latest charts and indicators.

In this daily bar chart of NVDA, above, we can see that prices have nearly doubled from the last big consolidation pattern around $100 — from December to early May. Prices are above the rising 50-day moving average line but may too far above the rising 200-day moving average line.

Volume has been declining since June and the daily On-Balance-Volume (OBV) line has not made a new high to match or confirm the new price highs in the past few months. Momentum has been diverging since May, with lower and lower momentum readings contrasted to higher and higher price readings.

In this weekly bar chart of NVDA, above, we can see that prices are above the rising 40-week moving average line. This looks like the widest distance NVDA has been above this long-term indicator of trend and this could be the simplest measure of being overbought. Overbought readings can be resolved by sideways price action or a downward correction.

The weekly OBV line has not made much upside progress in the past three months and is a concern. The 12-week momentum study shows a bearish divergence from July to September, as prices make higher highs, but momentum slows. Prices are going up, but at a slower pace than earlier. A bearish divergence is am amber light, but not an automatic sell signal.

In this Point and Figure chart of NVDA, above, we can see an extended market, but also a $198 price target.

Bottom line: Slower volume, weaker momentum and diminished volume all point to caution ahead. Long NVDA? I would suggest raising sell-stop protection to a close below $170.

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