The Bullish Trend in NVIDIA Stock Is Predicated on THIS

NVDA StockNVDA Stock Still Bullish, for Now…

From the low of $24.51 that was set in February of 2016, NVIDIA Corporation (NASDAQ:NVDA) stock has gone on an epic run. This run has left most, including myself, in awe.

I have been following NVIDIA stock for much of this run that began in early 2016, and I have noticed that NVDA stock has certain price characteristics that abide to specific rules set out by technical analysis.

For those not familiar with my work, I extensively use technical analysis to generate my investment views. This method of investment analysis uses past price and volume data to discern trends and forecast future prices. As absurd as this method may sound, it has produced exceptional results when I have applied it to my trading strategies.

NVIDIA stock is currently testing numerous technical levels that have supported the price during this epic run and, in order to maintain its bullish stature, NVDA stock needs to remain above them.

The following NVDA price chart illustrates the moving average that is still supporting the epic advance.

nvda chart

Chart courtesy of StockCharts.com

The 50-day moving average, highlighted in blue, has supported this epic run in NVDA stock after it broke above this level in February 2016.

The 50-day moving average is created by adding up the closing prices of NVIDIA shares over the last 50 days and dividing that number by 50. This average is then plotted on the price chart in order to create a smoothed price trend.

This indicator is used to distinguish between the stocks that are technically healthy from the ones that are not. A stock trading above it is bullish, and one trading below it is bearish; it is that simple.

I have mentioned in many previous publications that a break below this level would confirm my fears that a larger correction is set to ensue. In order for this bullish advance to continue, NVDA stock must remain trading above this level.

The following NVIDIA stock chart illustrates a technical pattern that has supported price as it has advanced.

nvida chart

Chart courtesy of StockCharts.com

NVDA stock has been trading within an ascending channel since those fateful lows that were generated in February 2016. This ascending channel has two upward-sloping trend lines that define the support and resistance levels. This channel has effectively defined the bullish trend in NVIDIA stock, and the price has oscillated between these two trend lines.

To date, there have been two occasions where the price has wandered outside the ascending channel. Each time, traders have stepped in to push shares back within this channel.

Support outlined by the channel currently coincides with the 50-day moving average. The price of NVIDIA shares needs to remain above support in order to suggest that the bull market is still intact. Failure to hold above this level will indicate that a larger correction is set to ensue.

The following NVIDIA price chart illustrates the technical signals that have supported the price as it has accelerated.

nvida RSI chart

Chart courtesy of StockCharts.com

The stock chart above illustrates that two distinct signals have supported the price of NVDA as it has accelerated higher.

This first signal is illustrated in the top panel labeled “RSI,” which stands for relative strength indicator. RSI is an oscillator that indicates when a stock is overbought or oversold. An overbought level is reached when the oscillator crosses above 70, and an oversold level is reached when the oscillator falls below 30.

A price can remain overbought for a long duration, and the chart above is a perfect example of this. In early May 2016, the RSI indicator breached the 70 level and has remained above this level ever since. Much of the acceleration in price had occurred as NVIDIA has been overbought. A sustained close below 70 would trigger a bearish signal that would suggest that the acceleration in the price has concluded, and a correction is set to ensue.

The second signal is illustrated in the lower panel labeled “MACD,” which stands for moving average convergence/divergence. It is a momentum indicator that uses signal-line crosses to distinguish between bullish and bearish momentum.

In March 2016, a bullish cross was generated, indicating that bullish momentum had once again overwhelmed bearish momentum. NVIDIA shares have trended higher ever since. In late-October 2016, this indicator was in jeopardy of crossing in a bearish manner, but the price quickly accelerated higher following a better-than-expected earnings report and the bullish cross remained intact.

The MACD indicator is once again converging and, in order to stem off a bearish signal, higher NVDA prices are needed.

Bottom Line on NVIDIA Stock

The indicators that have supported the bullish advance in NVIDIA stock, after shares bottomed in February 2016, are all being put to the test at the same time. In order for the bull market advance in NVDA stock to remain intact, higher prices are needed to stem the bearish signals that can generate. If these signals are generated, I can only assume that a larger correction is set to ensue.