NVIDIA Stock Is in Bullish Alignment Once Again

NVIDIA StockNVDA Stock to Go Another Leg higher

Wow, quite a bit has changed since my last report on NVIDIA Corporation (NASDAQ:NVDA) was published in April, and this warrants taking another look because the implications of what has transpired have changed the landscape on NVIDIA stock.

My previous report on this company, “NVIDIA Stock Is Constructively Alleviating Overbought Conditions,” outlined key indications which served to suggest that NVDA stock was setting up for its next move. This move has occurred, and this investment is once again forging new highs.

The catalyst which brought on this move was an earnings announcement on May 9, when the company beat on both the top and bottom lines. If this news was not already good enough, the company issued strong forward guidance, citing growth in all segments. This bullish news caused the stock to trade higher by more than 13% in after-hours trading,  which is why the stock left a gap on the price chart the very next day. The following NVDIA stock chart illustrates the effects that this catalyst had on the NVDA stock chart.

NVDIA stock chart

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Chart courtesy of StockCharts.com

In my last publication on this company, I noted that NVIDIA shares were trading within a defined trading range. It seemed as though this stock was using this range to unwind any overbought conditions that were created in the epic advance that took place last year, when NVDA shares appreciated to the tune of 226.92%.

I noted that, even though there were indications suggesting that lower prices were set to prevail, this trading range was acting to define current levels of support and resistance. A resolution to this trading range would suggest the next directional move that this investment was set to take. The fact that this trading range was occurring above the 200-day moving average was enough to retain a slight bullish posture on this investment.

To clarify the 200-day moving average is a very popular trading tool used by many analysts. This moving average acts as the dividing line between healthy stock trading in a bull market, and unhealthy stocks trading in a bear market. The price chart above illustrates that the trading range was developing above this moving average, serving to suggest that this level was possibly going to be tested, while simultaneously increasing the odds that the trading range was going to resolve itself in a bullish manner.

The better-than-expected earnings report caused the stock price to exit the trading range in an upward direction. The resolution of the trading range is serving to suggest that the next leg is towards higher prices.

Like I mentioned earlier in this publication, the bullish resolution of the trading range has changed the landscape for NVIDIA stock, and the following price chart illustrates this notion.

NVDA price chart

Chart courtesy of StockCharts.com

There were two key indicators that I was watching closely as the epic run in stock price was in development last year.

This first indicator was the relative strength indicator (RSI), which is located in the upper panel of the chart above. This indicator is used to measure overbought and oversold conditions. These conditions are measured using an oscillator that fluctuates between 0 and 100. A reading above 70 is overbought, and a reading below 30 is oversold. Once an indication becomes overbought or oversold, it can remain there for some time.

There are numerous ways that one can use indicators, but the focus will be aimed at this investment’s habit of remaining overbought, which is referred to as an embedded signal. An indication to act is generated when this indicator crosses above 70 and then crosses back below it, suggesting that the advance has concluded. The surge following the earnings report has caused this indication to become overbought once again, which suggests that this investment is once again set to advance until an oscillator falls back below 70.

The second indication is from the moving average convergence/divergence (MACD) indicator, which is located in the lower panel of the chart above. This indicator is used to distinguish between bullish and bearish momentum.

When this indication is bullish, it serves to suggest that bullish momentum is influencing NVDA stock, and it creates an environment where the predominant path of least resistance is towards higher prices.

When this indication was bearish like it was in February, it served to suggest that bearish momentum was influencing NVIDIA stock. It correctly indicated that the advance had concluded, and the trading range developed as a result.

The surge in price following earnings caused the MACD indicator to cross in a bullish manner once again, suggesting that bullish momentum is influencing another leg higher in NVDA shares.

Both of these indications are now in sync and, as long as they are both suggesting higher prices, my views on this investment will match. I believe that the current advance will continue until these indications once again suggest that this current advance has concluded.

Bottom Line on NVIDIA Stock

NVIDIA stock surged in price following earnings, which caused a number of indications on the chart, which supported the initial advance to become bullish once again. As long as these indications remain in bullish alignment, I will have no choice but to keep a bullish view on this investment.