Author: Jeran Wittenstein, Ryan Vlastelica, Bloomberg; Translated by: Tao Zhu, Golden Finance
Three days of $430 billion worth of selling in Nvidia Corp. has traders turning to technical analysis for clues on where the bottom might be.
Nvidia shares have fallen 13% since briefly surpassing Microsoft Corp., which was named the world’s most valuable company last week. That led to the first technical correction in Nvidia shares since April, when they fall 10% or more from recent highs. The sudden reversal includes some clear signs of compromise, said Buff Dormeier, chief technical analyst at Kingsview Partners.
“The fact that this happened after all this good news — the spinoff, becoming the largest company — is concerning,” he said of the 10-for-1 stock split announced last month. Dormeier sees short-term support around $115, with the next significant level at $100.
The $115 area in Nvidia’s stock price is near a key Fibonacci retracement level, a tool used by technical analysis to determine support or resistance lines for stocks and other assets. The stock is trading at the 38.2% retracement from its April intraday low to last week’s record high, about 2% below Monday’s close.
While technical analysis (looking for insights into historical trading patterns) is not exact, it can provide a useful roadmap for investors.
Nvidia’s stock has surged this year on strong demand for its chips that dominate the artificial intelligence computing market. In the latest rally, the stock surged 43% from its May 22 earnings report and stock split announcement to a June 18 peak when it closed with a market value of $3.34 trillion, surpassing Microsoft’s $3.32 trillion. Despite three days of losses since then, Nvidia is still up 139% this year.
Ari Wald, head of technical analysis at Oppenheimer, believes that the long-term trend is more important for Nvidia than any specific level, and the long-term trend remains strong, with Nvidia's stock price still well above its 50-day moving average of about $101 and its 100-day moving average of $92.
“Usually a major top is a process where there are a few rounds of buying and selling before price momentum creeps in and the key level can’t be held. We haven’t seen anything like that,” he said in an interview. “That’s how Nvidia is trading.”
While he, like Dormeier, believes the long-term uptrend remains intact, he is keeping a close eye on the $100 level.
“For a stock like Nvidia that’s in an uptrend, a break below the first support level isn’t something to worry about,” said Bruce Zaro, chief technical strategist at Granite Wealth Management. However, he said a drop below $100 would be bad.
“It may not have a long-term impact, but it shows that you should be patient, especially during a period when markets can be volatile and have a downside bias as we wait for the election and the Fed to put pressure on interest rates.”
