NVIDIA Corporation: Is a Selloff in NVDA Stock Looming?

nvidia stockNVDA Stock: Bearish Signals Mounting

NVIDIA Corporation (NASDAQ:NVDA) stock is another great name in the semiconductor space that is having a spectacular year. NVDA stock is up 111%, as this sector is shining bright. Off of the lows that were created in the beginning of the year, NVDA stock is up a whopping  170%.

These gains are huge, to say the least, and I wish I could say that this performance will continue, but I have reason to believe that the price has gotten ahead of itself, and that a sell-off in NVIDIA stock is looming.

Price and volume data is the foundation of my investment analysis. In theory, trends and stock prices can be forecasted using this historical price and volume data. I have been using this style of investment analysis for my entire career, and I have worked diligently in developing my skill set.

The price chart of NVDA stock is giving me reason to raise caution on this position, and these concerns are compounded when I use multiple time frames.

The following NVIDIA stock chart illustrates where my original concerns developed.

nvda3

Chart courtesy of StockCharts.com

Since the lows that developed in February of this year, the run higher in NVDA stock has been quite uniform and precise. The trend higher can be easily defined using a simple trend line. This uptrend line is created by connecting the troughs on the price chart. This trend line has acted as support during this entire bull market run, and a breach of this level would mean that the trend higher in the share price has ended.

NVIDIA stock is currently sitting on this trend line, and the odds of this trend line breaking have increased, as the internal indicators have not confirmed the new highs that developed in September and October.

The top panel labeled “RSI” is the relative strength indicator, and this indicator is not confirming the new highs that were generated in September and October. RSI is an oscillator that traders use to time their entry and exit points. Divergences are used as an early warning system that the current trend is weakening and that a reversal is imminent.

The new highs attained in September and early October were not confirmed by RSI, as this indicator proceeded to make lower lows. This increases the likelihood that the current trend is losing steam and that a trend break is possible.

The lower panel labeled “MACD” is a moving average convergence/divergence, a simple and effective trend-following momentum indicator. Signal-line crossings are used to distinguish between bullish and bearish signals. This signal is converging, and a bearish cross will generate in the coming weeks. This signal is effective in determining which camp is in control, and a bearish cross means that the momentum is behind the bears.

Both of these signals put the uptrend line into question as the momentum that drove share price higher fades.

The following long-term NVIDIA stock chart illustrates that a major level of resistance was just tested.

nvda

Chart courtesy of StockCharts.com

The chart above paints a striking picture. The purple trend line is a level of resistance, and it is created by connecting the peaks on the price chart. This NVIDIA stock chart spans 17 years, and the trend line has just been tested. This major level of resistance has only been tested on two other occasions and, in both cases, a vicious selloff began, and the NVDA stock price was decimated.

To dismiss this chart is a fool’s game. Testing this level of resistance is a warning that NVDA stock has now ventured too far and too fast. Compound this chart with the previous signals on the first chart, and the bears have the required ingredients to act.

The Bottom Line on NVIDIA Stock

I believe that this trend line will break, and that a sell-off will ensue in NVIDIA stock. It is best to act accordingly, as there are too many bearish indicators that are lining up that support my negative view on NVDA stock.

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