(Note: The author of this fundamental analysis is a financial writer and portfolio manager.)
Nvidia Corp. (NVDA) appears to be breaking down from a technical standpoint and could set to plunge by over 11% from its current level around $217. Shares of Nvidia are already down about 14.5% off their intraday high of $254 on February 21. The sharp decline has been worse than that of the S&P 500 which has dropped by just over 8% from its highs.
The technical setup in the stock appears weak, with the stock breaking a key level of support at $218, which may signal shares of the stock are heading for a decline towards $191, a drop of about 11%. Should that happen, it would result in the stock plunging into a bear market, with a total decline of nearly 25%. (For more, see also: Is NVIDIA Topping Out?)
The one-hour chart shows that Nvidia has fallen below a technical support level around $218, and with that support now broken, the next level of technical support does not come until around $191—11% lower than the stock's current price around $217. Also, it is worth noting that the stock recently stopped rising after hitting a notable trendline that had previously served as support, and is now serving as resistance. This points to another bearish indicator.
Relative Strength Weakening
The daily chart shows that the relative strength index (RSI) has been trending lower since hitting a peak around 80, an indication of the stock being overbought, at the end of January. Since that time, the RSI has been trending lower and sending a divergence signal, a bearish indication as well. The current RSI reading stands at 40, and the RSI would first need to fall below 30 before hitting oversold levels. This would suggest that there is the potential for shares to fall further.
Volume levels have also been steadily declining and could be serving as an indication that perhaps the number of buyers are thinning out. Also, serving as a negative indicator of the direction of the stock. (For more, see also: Is NVIDIA Too Dependent on Bitcoin?)
Nvidia will report its next round of results on May 10, and it is at that time investors will get a sense for how the fundamentals stack up against the technicals. It would seem in a market environment with higher levels of volatility and a decreasing appetite for risk, Nvidia shares may continue to struggle.
Michael Kramer is the Founder of Mott Capital Management LLC, a registered investment adviser, and the founder of the company's actively managed, long-only Thematic Growth Portfolio. Kramer typically buys and holds stocks for a duration of two to three years. Click here for Kramer's bio and his portfolio's holdings. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein.Upon request, the advisor will provide a list of all recommendation made during the past twelve months. Past performance is not indicative of future performance.