NVIDIA Corporation (NASDAQ:NVDA) blew away third-quarter earnings on November 11, 2016, causing NVDA stock to surge 29.8% the next trading day. This jump in price was already on the back of an outstanding year in terms of performance.
This was incredible news for bullish investors, but for pundits like myself, I could not have been more incorrect about the next directional move in NVIDIA stock.
In my previous report on NVIDIA stock, I described technical indicators that were weakening as the price continued to make new highs. I interpreted these divergences between the price and the indicators as a bearish signal, and I constructed a bearish trading bias based on this.
Even though I will admit I was wrong on NVDA stock, I still cannot be bullish on this investment. The best I can do is retract my bearish view and take a neutral stance. The indicators are still stretched, but the bearish signals that were only moments away from generating have been effectively averted, and it takes a great deal of bullish momentum to do this. I am now awaiting a constructive price pattern to sway my bias.
The following NVIDIA stock chart illustrates the signals that failed to confirm a bearish view.
Chart courtesy of StockCharts.com
The focus on the NVIDIA stock chart above is centered around two indicators: relative strength indicator (RSI) and moving average convergence/divergence (MACD).
The top panel labeled “RSI” is an oscillator that indicates when stocks are overbought and oversold. A stock becomes overbought when the oscillator crosses above 70, and a bearish signal is generated when the oscillator crosses back below it. The oversold signal is similar in nature, as oversold signals are generated when the oscillator falls below 30 and a bullish signal is generated when it crosses back above it.
Prior to the earnings announcement, it looked as though this oscillator was going to generate a bearish signal by crossing back below 70, but that was quickly quashed when the price soared higher.
The lower panel labeled “MACD” is a momentum and trend-following indicator that is generated when signal lines cross. These crosses are used to distinguish between bullish and bearish momentum.
MACD was also on the verge of generating a bearish cross prior to the earnings announcement, but the surge higher in price has also averted this bearish signal.
The surge higher in price is once again testing resistance outlined by the ascending channel. An ascending channel has two trend lines that define the upper and lower bounds. The share price oscillates between these two lines for as long as the trend permits. NVDA stock has been trading within this channel since the lows that were generated in February. This channel remains firmly intact.
The following NVDA stock chart illustrates the indicator that has served as support in 2016, and this is the level I will be watching going forward.
Chart courtesy of StockCharts.com
The 50-day moving average has acted as a level of support for much of NVDA stock’s bullish run in 2016. The 50-day moving average is created by taking the average of the stock closing prices over the past 50 days. This indicator is used to distinguish between the stocks that are technically healthy from the ones that are not. Trading above the moving average is bullish, and trading below it is bearish.
The 50-day moving average will now act as my bearish confirmation indicator. If NVDA stock ever manages to trade below this moving average, I will have all the reason I need to be bearish on this investment. Until that happens, I can only sit back and watch NVIDIA stock, awaiting a constructive signal.
Bottom Line on NVIDIA stock
I have retraced my bearish view on NVDA stock because the signals I believed were going to confirm my view have averted. My current bias is neutral, as I await the next price pattern or signal to dictate my view on NVIDIA stock.