Graphics powerhouse NVIDIA Corporation (NVDA) reports earnings after Thursday's closing bell, with Wall Street analysts expecting profits of $1.15 per share on $2.55 billion in second quarter revenues. The company beat expectations and reiterated guidance in May's first quarter confessional, triggering a mixed session that shook out bulls and bears. The stock dropped like a rock for the rest of the month, adding nearly 15% to already substantial May losses.
The stock has struggled since posting an all-time high above $290 in October 2018, dumping more than 50% into the December low and recovering just one-third of those losses in the first half of 2019. It has now failed two attempts to mount resistance at the 50-week exponential moving average (EMA) while posting one successful test at the 2018 low. Despite this seemingly bearish action, accumulation readings reveal tremendous loyalty and are now situated near April 2019's all-time high.
The company faces less exposure to China than many chip stocks but isn't immune to macro headwinds, which have deeply affected the sector since the first quarter of 2018. The PHLX Semiconductor Index (SOX) has now failed two attempts to mount 50-day EMA resistance near 1,500, raising the odds that it will test the May low at 1,287. Unfortunately for bulls, that downdraft could signal the end of a multi-year effort to mount 19-year resistance
NVDA Long-Term Chart (1999 – 2019)
A January 1999 initial public offering opened at a split-adjusted $1.83 and eased into a narrow range with support near $1.30. It broke range resistance in November and took off, powered by the final stage of the internet bubble bull market. The rally ended in the mid-teens in June 2000, giving way to a steep decline that found support near $4.50 at year end. A May 2001 breakout attempt failed, while an October attempt succeeded, lifting the stock into the mid-$20s.
That peak marked the highest high for the next five years, ahead of a sell-off to a three-year low in October 2002. A mid-decade recovery unfolded in two waves, finally completing a round trip into the prior high in the fourth quarter of 2006. A 2007 breakout stalled in the upper $30s, yielding a major decline that found support below $6.00 in 2009. The stock traded within those boundaries until 2016, when the bitcoin bubble triggered a major breakout.
The stock posted historic gains into October 2018's all-time high at $292.76 and turned sharply lower into December, losing more than half its value before bouncing at the 50-month EMA. A second quarter downturn ended at the same support level, but the subsequent uptick failed to ignite strong buying interest, stalling in the $170s in July. The current sell-off has now reached within 18 points of the June low.
The monthly sochastics oscillator crossed into a buy cycle in March 2019, predicting at least six to nine months of relative strength. It has now stalled near the panel's midpoint, but this level often emits whipsaws, so there's still plenty of time for bulls to come off the sidelines and lift the stock to higher prices. However, the weak first half performance compared to other big tech stocks is warning shareholders to hope for the best but plan for the worst.
NVDA Short-Term Chart (2017 – 2019)
The on-balance volume (OBV) accumulation-distribution indicator held up relatively well during the fourth quarter swoon, dropping to a 13-month low while price hit a 19-month low. The stock attracted excellent buying interest into April, lifting OBV to an all-time high while predicting that price would soon play catch-up. So far at least, this has proved to be a false signal because NVIDIA is now trading nearly 40 points lower.
Look for a bearish earnings reaction after Thursday's report to bring the 50-month EMA into play for the third time. That support level is now loosely aligned with the 200-week EMA, so that moving average should be watched as well. On the flip side, a bullish reaction won't sound an immediate all-clear signal because any uptick will need to mount the 50-week EMA at $175 before setting off longer-term buying signals.
The Bottom Line
NVIDIA stock is compressed between relatively narrow support and resistance levels after a weak first half performance, raising the stakes for this week's quarterly report.
Disclosure: The author held no positions in the aforementioned securities at the time of publication.