NVIDIA Corporation (NVDA) stock has bounced back to long-term moving average resistance after a June recovery wave and could turn sharply lower in the coming weeks, rewarding timely short sales. More importantly, the stock continues to trade uncomfortably close to December's 18-month low, raising the odds for a retest and breakdown that exposes price action to the double digits for the first time since 2017.

Shares of the chip-maker have underperformed badly since hitting an all-time high near $300 in October 2018, dropping more than 160 points into December's low and stalling in the $190s in April after a three-month bounce. The stock has now failed two attempts to mount 200-day exponential moving average (EMA) resistance, which was broken during the October descent, suggesting that the stock has entered a bear market that could last for several years.

NVDA Long-Term Chart (1999 – 2019)

Long-term chart showing the share price performance of NVIDIA Corporation (NVDA)
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The company came public in January 1999 at a split-adjusted $1.83 and eased into a sideways pattern, ahead of a November breakout that attracted intense momentum buying interest. The rally posted new highs in 2000 and 2001, topping out in the mid-$20s before descending to a three-year low at $2.40 in October 2002. The subsequent bounce completed a round trip into the 2001 high in 2005, yielding a breakout that ended in the upper $30s in October 2007.

The stock held above the 2002 and 2004 lows during the 2008 economic collapse, settling at a four-year low near $6.00, ahead of a recovery wave that stalled within two points of the 2001 high in 2011. That marked the highest high for the next four years, giving way to narrow sideways action in the low to mid-teens. The surge in cryptocurrency interest ended the impasse in 2015, with crypto miners buying the most expensive graphics cards to make their own digital currency.

The rally reached resistance at the 2007 high in 2016, generating a powerful breakout that lifted the stock into market leadership. It posted historic gains into October 2018's all-time high at $293 and turned tail, dropping with broad benchmarks through the fourth quarter. The decline found support at the 50-month EMA in December, yielding a much weaker bounce than broad-based semiconductor funds in the first quarter of 2019.

The monthly stochastics oscillator entered a long-term buy cycle at the oversold level in February 2019, predicting at least six to nine months of relative strength. However, the bullish signal failed in June, waving a red flag following a successful retest at the 50-month moving average. This ill-timed downturn adds considerable risk, raising the odds that the stock will break 2018 support and drop into the double digits.

NVDA Short-Term Chart (2015 – 2019)

NVDA
TradingView.Com 

The price chart back to 2015 reveals at least three unfilled gaps that could act as magnets in the coming months. The 200-day EMA tells a bearish tale in this regard, with the stock breaking that support level in October and failing retests in April and early July. These failures have forced long-term stochastics into a new sell cycle, indicating that bears are now in control of the ticker tape despite positive industry news flow.

A Fibonacci grid stretched across the 2018 downtrend aligns the .382 sell-off retracement level right at the same level of the 2015 into 2018 uptrend, while the first reversal at 200-day resistance in April occurred at that interaction. This symmetry exposes major resistance above $180 that marks the dividing line between bull and bear power. It also has the power to deny a bullish double bottom reversal after the strong June bounce.

The on-balance volume (OBV) accumulation-distribution indicator offers a ray of hope for battered bulls, holding high in the 18-month trading range. This reveals unusual shareholder loyalty that could turn finally the tide in the third quarter. Conversely, this large supply of long positions could add major downside after a breakdown because they may be forced to exit through a very narrow door.

The Bottom Line

Bearish technical signs indicate that NVIDIA stock may head into a dangerous test at December 2018's deep low in the $120s.

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