NVIDIA (NVDA) Could Break Out to New Highs

NVIDIA Corporation (NVDA) stock has completed a three-week basing pattern on top of the 50-day moving average and turned sharply higher, setting the stage for a test of September's all-time high near $590. A wave of positive catalysts is driving the uptick, which could pick up steam heading into mid-month. Accumulation readings have already lifted to new highs, establishing a brisk tailwind that raises the odds for a successful breakout and advance toward $700.

BMO Capital Markets raised its NVIDIA price target from $565 to $650 on Tuesday, while Needham analyst Rajvindra Gill just highlighted the new Data Processing Unit, which is a "data center on a chip" that can speed up CPU performance by offloading "critical networking, storage, and security tasks." The state-of-the-art technology could have major applications in the cloud computing and artificial intelligence communities, enhancing NVIDIA's already stellar reputation and bottom line.

In addition, the chip giant just announced a partnership with the artificial intelligence group at GlaxoSmithKline PLC (GSK), seeking to apply computation to the drug and vaccine discovery process. The implications are enormous, with the potential to target specific chemical and biological compounds through modeling, rather than trial and error. It could also cut down the time to commercial market, lowering the overall cost of research and production.

It's hard to find NVIDIA bears on Wall Street these days. The stock is currently rated as a "Strong Buy" based upon 26 "Buy" and 4 "Hold" recommendations. Just one analyst thinks the stock is overvalued and is recommending that shareholders close positions at this time. Price targets currently range from a low of just $260 to a Street-high $700, while the market leader is set to open Wednesday's session about $18 below the median $577 target.

NVIDIA Daily Chart (2018 – 2020)

A multi-year uptrend ran out gas near $209 in October 2018, giving way to a selloff that stretched nearly 170 points into year end. The stock turned higher at the start of 2019 and spent the entire year grinding its way back toward the prior high. It finally completed the task in February 2020 and broke out, but the rally failed quickly, yielding a vertical plunge, followed by a V-shaped recovery that recouped 100% of those losses in May.

The subsequent breakout attracted strong buying interest, lifting the stock in a channeled advance that continued with few pullbacks into September's all-time high at $589.07. It fell nearly 120 points in the next three sessions and bounced at the 50-day exponential moving average (EMA), commencing a support test that continued for three weeks. The stock rallied off that trading floor at the end of the month and is now situated about 30 points under the prior peak.

The on-balance volume (OBV) accumulation-distribution indicator has been gaining ground since June 2019, often leading bullish price action. OBV posted a new high in early September and entered a distribution phase that continued for two weeks after the stock bottomed out. Buying interest has surged since that time, lifting this volume measurement to another all-time high. In turn, this predicts that price will soon follow and eventually break out into the $600s.

The Bottom Line

NVIDIA stock bounced at support in late September and could now test the bull market high near $590.

Disclosure: The author held no positions in the aforementioned securities at the time of publication.