NVIDIA Corporation: NVDA Stock Bull Is Up for a Test

NVDA StockNVDA Stock: Eyeing Support

The 2016 best-performing stock in the NASDAQ 100, NVIDIA Corporation (NASDAQ:NVDA), is having some trouble getting out of the gates in 2017. Year-to-date, NVDA stock is flat, having spent most of this time in marginally negative territory.

When we hear that past performance is not indicative of future results, this is usually aimed at fund performance, but the same rhetoric holds true for individual stock performance.

I base my investment ideas on the patterns and signals that are generated on a stock chart. This method of investment analysis is known as technical analysis, and it uses past price and volume data to discern trends and forecast future prices. Based on this notion, NVIDIA stock is still within the confines of its bullish trend, but I believe that NVDA stock is now going to be testing the merits of it.

The following NVIDIA stock chart illustrates a level that I believe will be tested in the not-too-distant future.


Chart courtesy of StockCharts.com

The NVDA stock chart above illustrates that the 50-day moving average has supported much of NVIDIA stock’s bullish advance since 2016.

The 50-day moving average is created by taking the average closing prices over the last 50 days, and then plotting that value on a chart. This indicator identifies the underlying trend, and is used to distinguish between the stocks that are technically healthy from the ones that are not. The slope of the moving average identifies whether the trend is bullish or bearish, and the position at which the price sits above or below this moving average suggests whether the stock is technically healthy or not.

I have reason to believe that this moving average is once again going to be tested, and the bull market in NVDA stock will reside on its ability to stay above this moving average. A break below it would suggest that the recent bullish trend had concluded.

The following NVIDIA stock chart illustrates a pattern which suggests that price support will be tested.


Chart courtesy of StockCharts.com

An ascending channel has defined the entire bullish run in NVDA stock that began in February of last year. This bullish channel contains two upward sloping trend lines that define the support and resistance. NVIDIA stock has been effectively oscillating between these two levels as the bullish trend progressed.

The couple of times that NVDA stock drifted outside these levels, investors were quick to step in and rectify the situation by pushing the price back within the confines of these trend lines.

When the price fell below support in November, the breakdown was rectified, and then resistance was tested in short order. Now that a similar behavior has occurred as the price broke out above resistance and was also rectified, I can only assume that support is going to be tested, which includes the 50-day moving average.

The following NVIDIA stock chart reinforces the notion that price support is going to be tested.


Chart courtesy of StockCharts.com

The chart above illustrates the bearish engulfing candlestick pattern that developed as NVDA stock temporarily broke above the ascending channel.

A bearish engulfing pattern consists of two candlesticks. The first candlestick is a white positive candle, and the second candle is a red candlestick that is created when the price opens the trading day above the body of the first candlestick, and then closes the trading day below the body of the first candlestick. The second candle completely engulfs the first one, indicating that a trend has reversal has taken place.

The factors that make this engulfing pattern all that more significant is that it developed at a time when NVIDIA stock was forging a new all-time high, and volume experienced a spike. This price action suggests that an interim top was formed, and supports the notion that lower prices are set to prevail. This supports my view that price support is going to be tested.

Bottom Line on NVIDIA Stock

The bull market advance in NVIDIA stock is still intact, but there are a number of of indicators on the NVDA stock chart which suggest that this bull market will be put to a test.