Nvidia is entering correction territory. Is it a warning signal? (04/09/2024)

Hello, everyone! This week, our spotlight is on Nvidia Corporation $NVIDIA(NVDA.US)$, a bellwether for the broader US stock market. We’ll dive into the latest trends and closely examine the company’s recent market activity.

What’s new?

On April 9, 2024, Nvidia’s stock price ended the day down 2% at $853.54, placing the semiconductor giant into what’s considered correction territory.

Wall Street generally defines a correction as a stock or index declining 10% to 20% from its recent peak during a bull market. A drop of more than 20% signals a transition into a bear market.

Nvidia, having reached a closing peak of $950.02 on March 25, now finds its correction threshold between $760.02 and $855.02.

The stock saw a decline after an initial surge post the company's GTC developers' event, held from March 18-21, where the new Blackwell chip series was introduced. Currently, the stock trades just below the level it was at before the event commenced.

Among the other tech stocks in the group known as the Magnificent Seven, Tesla’s stock is in a bear market, Apple’s in correction territory, and the other four components—Alphabet, Amazon, Meta, and Microsoft—all are seeing their stocks near highs.

On April 9, 2024, D.A. Davidson analyst Gil Luria delivered a cautious long-term view on Nvidia shares. Luria stated that the company "should deliver a spectacular 2024 (and perhaps into 2025)," but "recent trends set up a significant cyclical downturn by 2026."

The analyst has a Hold rating on Nvidia stock and a $620 target price, which is among the lowest by any Wall Street analyst.

The bearish view from D.A. Davidson is an outlier when it comes to Nvidia, with 53 Wall Street analysts holding a Buy rating or equivalent on the stock, according to FactSet—compared with just seven with a Hold rating, and none with a Sell rating. The average target price for the stock is $972.95.

As NVDA has been a leading stock during its ascent, there’s now speculation whether it will similarly lead on the way down.

Chart of the day

Trend analysis:

1. The weekly chart above displays Nvidia’s (NVDA) entry into a bull market in October 2022, with the stock price surging over 280% by July 2023.

2. A price consolidation phase occurred from July 2023 to December 2023, forming a rectangle-like formation.

3. Another strong uptrend began in early 2024, driving the price to over $900.

4. However, a recent price correction has caused the stock price to fall over 10% from the closing high recorded on March 25.

Technical indicators:

• NVDA has been trading below the 20-day moving average (MA20) for several days, and it is approaching the rising 50-day moving average (MA50) line.

• A potential Double Top pattern is likely to form with the Neckline around $850.

• The trading volume has been lower than its 10-day moving average, indicating less enthusiasm in the market for the stock.

• The 14-day relative strength index (RSI) has recently dipped below 50, which has not been seen since the beginning of the year.

On the weekly chart, the three most recent candles were red (bearish) with lower weekly closes. While the RSI indicates that the asset is still in overbought territory, the KDJ indicator has moved away from the overbought territory, implying a potential price correction or consolidation.

Next move?

Currently, NVDA is trading at a 1-month low. The MA50 should be closely monitored as a barometer of short-term market sentiment, and the Neckline ($850) of the potential Double Top pattern on the daily chart will also be important.

This presentation discusses technical analysis, other approaches, including fundamental analysis, may offer very different views. The examples provided are for illustrative purposes only and are not intended to be reflective of the results you can expect to achieve.

All investing involves risk, including the potential loss of principal, and there can be no guarantee that any investing strategy will be successful.