KEY
TAKEAWAYS
- Nvidia is up 77% year-to-date, far outpacing the S&P 500 and Nasdaq that are each up about 7-8%.
- A bearish engulfing sample is a two-bar candle sample indicating short-term distribution and destructive sentiment.
- Draw back targets for NVDA could be recognized utilizing trendlines and Fibonacci retracements.
Massive-cap development shares have been outperforming for fairly a while, with semiconductors maybe probably the most consultant of the power of that commerce in latest months. Actually, the semiconductor ETF (SMH) completed the week up 29% year-to-date, far outpacing the S&P 500 and Nasdaq 100, that are each up about 7.5% in 2024.
Nvidia (NVDA) has been maybe probably the most overheated of the Magnificent 7 shares, gaining over 87% in 2024 via Thursday’s shut. Friday, nonetheless, noticed NVDA open greater and shut decrease, creating the dreaded bearish engulfing sample. Does this imply the highest is in for Nvidia?
Let’s begin by reviewing the long-term development going into this week, which has been nothing in need of distinctive. After breaking above resistance round $500 in early January, Nvidia launched into a constant uptrend of upper highs and better lows. NVDA virtually doubled in worth via this week, reaching an intraday excessive of $974 on Friday. However the decrease shut is what actually tells the story right here.
A bearish engulfing sample is a traditional two-bar reversal sample the place an up shut, if adopted by a down shut, and day two’s actual physique “engulfs” the vary of day one’s actual physique. The intraday chart for these two days exhibits how the short-term worth motion demonstrates a real reversal in sentiment.
Now we’re seeing this week’s worth motion utilizing 5-minute candles. Word how Thursday’s rally continued the upward trajectory that basically started on Tuesday going into the shut. Friday noticed an enormous hole greater on the open, however, after an preliminary rally, NVDA turned decrease and continued this pullback into the afternoon. By the shut, Nvidia completed effectively under Thursday’s buying and selling vary, creating the bearish engulfing sample.
The excellent news is about two-bar candle patterns is that they supply a built-in threat administration system! Steve Nison is usually credited with bringing candlestick charting, a standard Japanese type of technical evaluation, and selling its deserves to Western technical analysts. I spoke with Steve years in the past about reversal patterns, and he famous that the excessive of the two-bar bearish engulfing sample can be utilized as a easy stop-loss method.
So, if NVDA would push above the $975 degree subsequent week, based mostly on Friday’s intraday excessive, that might negate the reversal sample and recommend additional upside potential. In any other case, the bearish implication of this sample stays in place, and means that semiconductors could also be in for a pullback as we proceed via the month of March.
Creator’s notice: I’ve set a worth alert for NVDA breaking above $975 utilizing the Technical Alert Workbench, and I would encourage you to do the identical!
If we assume that “the highest” is in, not less than for now, then how can we determine some potential draw back targets for Nvidia?
A trendline based mostly on the foremost lows in 2024 yields a draw back goal round $760-775, relying on how rapidly a pullback would happen. This could additionally line up pretty effectively with Nvidia’s most up-to-date swing low, round $775. If this degree would fail to carry, I would key in on the 200-day transferring common, which at present sits round $660.
A fast Fibonacci evaluation would recommend an preliminary draw back goal round $750, which might signify a 38.2% retracement of the October 2023 low to the latest excessive round $975. The 200-day transferring common additionally strains up effectively with the 50% retracement degree round $682, giving further emphasis to this as a possible draw back assist degree.
As I discussed in the beginning of this text, I’d take into account charts like Nvidia to be harmless till confirmed responsible. This implies an uptrend is in place so long as we proceed to watch a sample of upper highs and better lows. However, by noticing a bearish engulfing sample on NVDA, in addition to on the S&P 500 and Nasdaq 100, we are able to anticipate how short-term worth reversals might certainly manifest into broader declines that might catch buyers without warning!
RR#6,
Dave
P.S. Able to improve your funding course of? Try my free behavioral investing course!
David Keller, CMT
Chief Market Strategist
StockCharts.com
Disclaimer: This weblog is for academic functions solely and shouldn’t be construed as monetary recommendation. The concepts and techniques ought to by no means be used with out first assessing your individual private and monetary state of affairs, or with out consulting a monetary skilled.
The creator doesn’t have a place in talked about securities on the time of publication. Any opinions expressed herein are solely these of the creator and don’t in any manner signify the views or opinions of some other particular person or entity.
David Keller, CMT is Chief Market Strategist at StockCharts.com, the place he helps buyers reduce behavioral biases via technical evaluation. He’s a frequent host on StockCharts TV, and he relates mindfulness strategies to investor resolution making in his weblog, The Aware Investor.
David can also be President and Chief Strategist at Sierra Alpha Analysis LLC, a boutique funding analysis agency centered on managing threat via market consciousness. He combines the strengths of technical evaluation, behavioral finance, and information visualization to determine funding alternatives and enrich relationships between advisors and purchasers.
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