NVIDIA Corporation (NVDA) reports earnings after Thursday's closing bell, with analysts expecting the graphics superstar to report earnings per share of $1.84 on $3.1 billion in revenues. The company beat less aggressive estimates in May's second quarter report, but the stock sold off more than 2% in reaction to slowing crypto sales and GPU price normalization. The company also warned that sales of chips used for crypto mining could drop as much as two-thirds in the second quarter.
The stock posted an all-time high at $269.20 in June, but the rally failed to gain traction, giving way to a choppy sideways tape, with the most recent close just 10 points above January's peak near $250. Accumulation has hardly budged through the mixed action, but many analysts expect the stock to trade at new highs in coming months. It's hard to argue with that point of view, given this juggernaut's upward trajectory since 2015.
Post-earnings price action should overcome slowing crypto sales as long as the result doesn't exceed the company's downside target because traders have had three months to digest the May warning. However, it's possible that traders have underestimated the flight out of crypto assets, with bitcoin dropping nearly 24% since the May report. Even so, gamers may have picked up the slack, buying expensive cards that were out of stock in the prior quarter due to crypto mania. (See also: NVIDIA Debuts 'Awesome' Next Gen Chip; Shares Rise.)
NVDA Long-Term Chart (1999 – 2018, Log Scale)
The company came public at a split-adjusted $ 1.83 in January 1999, at the height of the internet bubble, and entered a trading range with resistance just above $2.20. It broke out in the second half of the year and entered a powerful trend advance that continued into the 2002 high at $24.22. The stock then turned tail with world markets, giving up those gains in a vertical slide that found support on top of the breakout level.
It took more than four years to complete a round trip into the prior high, yielding a 2007 breakout that topped out one year later at $39.67. It fell into the single digits during the 2008 economic collapse but held support at a trendline of rising lows going back to the IPO date. The subsequent bounce stalled at the .618 Fibonacci sell-off retracement level in 2011, giving way to more than four years of underperformance compared to the skyrocketing tech sector.
A 2015 uptick gathered steam into 2016 and went vertical, with the momentum crowd carving a historic uptrend that lifted the stock above $100 at the start of 2017. It paused for four months, working off overbought technicals, and soared once again, more than doubling in price into January 2018. Price action then eased into a rising wedge pattern, denoting limited buying interest but little or no selling pressure. (For more, see: How NVIDIA Makes Money.)
NVDA Short-Term Chart (2017 – 2018, Arithmetic Scale)
A strong earnings report could bring wedge resistance at $280 into play, but traders should expect a two-sided tape with modest buying power until the stock clears the psychological $300 level. It's unclear if that's possible between now and the end of 2018. Conversely, bulls have little to fear until a decline cuts through wedge support near $245. Even then, channel support at $235 (red lines) and the 200-day exponential moving average (EMA) at $230 could attract buying pressure and a dip buying opportunity.
In the shorter term, a breakdown through $250 would indicate that the bears are in control and could press their hand, given last quarter's post-news decline. The $270 level marks short-term resistance at June's all-time high, with a rally above that level putting bears on the defensive. In either case, multiple support and resistance levels suggest progressive price action into the fourth quarter, rather than a momentum-fueled uptick or death-defying decline. (See also: NVIDIA Stock Has More Than 20% Upside: Wells Fargo.)
The Bottom Line
NVIDIA reports second quarter earnings after the bell on Aug. 16, with the stock's multi-year uptrend favoring a progressive buy-the-news reaction. (For additional reading, check out: Buy NVIDIA Ahead of Earnings: Goldman Sachs.)
<Disclosure: The author held no positions in the aforementioned securities at the time of publication.>