NVIDIA Corporation (NVDA) stock is trading more than 5% higher ahead of Friday's opening bell after the company beat fourth quarter earnings expectations by five cents and reported in-line revenues. The graphics giant warned about first quarter revenues, but analysts cited guidance that was "better than feared" for a strong buy-the-bad-news reaction that has now reached a two-month high in the $160s.
The stock is extremely oversold and due for a relief rally, but heavy overhead supply is likely to limit short-term gains to the low $170s, which is well below the 200-day exponential moving average (EMA), broken in October. In turn, price action could then ease into a shallower trajectory, completing a longer-term bottom or larger-scale breakdown. Fortunately for bulls, lopsided technicals raise the odds that the 19-month low posted in December won't be violated for the rest of 2019.
Profitability in mining cryptocurrencies has dropped to zero while NVIDIA sales related to this endeavor plummeted throughout 2018. This cleansing process is now completed, allowing analysts to look at core growth in gaming and other applications rather than bubble-driven income that lifted the stock to all-time highs. A rally back to those highs seems unlikely given this revenue compression and the growing popularity of cloud-based gaming.
NVDA Long-Term Chart (2007 – 2019)
A multi-year uptrend topped out at $39.67 in October 2007, giving way to a downturn that accelerated during the 2008 economic crisis. The stock traded at a four-year low in the single digits when the dust settled after the October crash, marking a tradable low, ahead of a modest bounce that stalled at the .618 Fibonacci bear market retracement level in the first quarter of 2011. That marked the highest high for the next four years, ahead of limp price action between the lower teens and mid-$20s.
Bitcoin mania fueled a late 2015 breakout above the 2011 high, setting the stage for a momentum rally that unfolded through an Elliott five-wave rally impulse. It mounted the 2007 high just eight months later and took off like a rocket, posting historic 2016 and 2017 gains. Buying interest dried up in October 2018 after the stock had already doubled for the year, ahead of a steep downturn that carried 58% into the 50-month EMA and December low.
The monthly stochastics oscillator crossed into a complex sell cycle in February 2018 and plunged in the fourth quarter, reaching the deepest oversold reading since 2010. It is now attempting to cross into a new buy cycle, telling informed market players to watch the intensity and durability of the current uptick. This process could take several weeks at a minimum while price action probes the $170s.
NVDA Short-Term Chart (2017 – 2018)
The on-balance volume (OBV) accumulation-distribution indicator has held up better than price in recent months, indicating shareholder loyalty. It ticked higher in tandem with price for several years, finally topping out in February 2018. It tested that level in August and October but failed to break out, revealing a shrinking supply of willing buyers, and turned lower into year end. The first quarter recovery has now lifted OBV within a few clicks of last year's all-time high.
A Fibonacci grid stretched across the two-month trendline reveals heavy resistance in the upper $180s, where the .618 rally retracement has narrowly aligned with the .382 sell-off retracement. That level also marks the fill point of the massive November gap between $170 and $195 as well as the declining 200-day EMA. The barrier marks a high-odds ending point for the relief rally, but the 25-point hole has the power to generate weeks or months of headwinds, cautioning traders to take more reliable profits in the $170s.
The Bottom Line
NVIDIA stock is trading above $160 after the company warned about first quarter revenues. This buy-the-bad-news reaction indicates that selling pressure has now dried up, allowing the stock to grind out a long-term base.
Disclosure: The author held no positions in the aforementioned securities at the time of publication.