NVIDIA Corporation (NVDA) beat earnings estimates on Nov. 14, and the stock tested its quarterly risky level at $214.22 at the post-earnings high of $214.55 high set on Nov. 20. The company's revenue and earnings, while starting to improve, have not fully reached their potential. Analysts now project renewed year-over-year growth, and this notion is supported by a "golden cross" on its daily chart and a positive but overbought weekly chart.
The stock is not fundamentally cheap, however, as its P/E ratio is elevated at 58.06 with a puny dividend yield at 0.30%, according to Macrotrends. NVIDIA has beaten earnings per share estimates for the past four quarters, which supports the return of upward momentum for the stock.
The stock closed last week at $210.89, up 58% year to date and in bull market territory at 69.4% above its Dec. 26 low of $124.46. The stock set its 2019 high of $214.55 on Nov. 20, but its all-time intraday high was set at $292.76 during the week of Oct. 5, 2018.
The daily chart for NVIDIA
The daily chart for NVIDIA shows the formation of a "golden cross" on Aug. 23, when the 50-day simple moving average rose above the 200-day simple moving average, indicating that higher prices lie ahead. The stock tested its 200-day simple moving average as a buying opportunity on Aug. 29 at $160.11. Dec. 26 was a daily "key reversal," as the Dec. 26 close of $133.10 was above the Dec. 24 high of $129.97. This signal projected a tradeable rally in 2019.
The close of $133.50 on Dec. 31 was an important input to my proprietary analytics, and the annual value level at $131.80 was a buy level on Jan. 30. This level was nearly tested at its June 3 low of $132.60. The June 28 close of $164.23 was also an important input to my analytics. This resulted in a semiannual risky level at $251.81, which is above the chart. The close of $174.07 on Sep. 30 was an input that generated the quarterly risky level at $214.22, which was tested at the Nov. 20 high of $214.55. The close of $201.02 on Oct. 31 was the most recent input to my analytics, which resulted in the monthly value for November at $195.20.
The weekly chart for NVIDIA
The weekly chart for NVIDIA is positive but overbought, with the stock above its five-week modified moving average of $197.30. The stock is above its 200-week simple moving average, or "reversion to the mean" at $152.58. This average was tested at $154.77 as a buying opportunity during the week of June 7, 2019.
The 12 x 3 x 3 weekly slow stochastic reading ended last week at 88.99, up from 88.33 on Nov. 15. As 2019 began, the stochastic reading was 8.01, with the level below 10.00 making the stock technically "too cheap to ignore." This week, this reading will likely rise above 90, making the stock an "inflating parabolic bubble."
Trading strategy: Buy NVIDIA shares on weakness to the monthly value level at $195.20 and reduce holdings on strength to the semiannual risky level at $251.81. The stock would have to gap above its quarterly pivot at $214.22 to achieve this higher objective.
How to use my value levels and risky levels: Value levels and risky levels are based upon the last nine monthly, quarterly, semiannual, and annual closes. The first set of levels was based upon the closes on Dec. 31, 2018. The original annual level remains in play. The close at the end of June 2019 established new semiannual levels, and the semiannual level for the second half of 2019 remains in play. The quarterly level changes after the end of each quarter, so the close on Sep. 30 established the level for the fourth quarter. The close on Oct. 31 established the monthly level for November.
My theory is that nine years of volatility between closes are enough to assume that all possible bullish or bearish events for the stock are factored in. To capture share price volatility, investors should buy shares on weakness to a value level and reduce holdings on strength to a risky level. A pivot is a value level or risky level that was violated within its time horizon. Pivots act as magnets that have a high probability of being tested again before their time horizon expires.
How to use 12 x 3 x 3 weekly slow stochastic readings: My choice of using 12 x 3 x 3 weekly slow stochastic readings was based upon backtesting many methods of reading share-price momentum with the objective of finding the combination that resulted in the fewest false signals. I did this following the stock market crash of 1987, so I have been happy with the results for more than 30 years.
The stochastic reading covers the last 12 weeks of highs, lows, and closes for the stock. There is a raw calculation of the differences between the highest high and lowest low versus the closes. These levels are modified to a fast reading and a slow reading, and I found that the slow reading worked the best.
The stochastic reading scales between 00.00 and 100.00, with readings above 80.00 considered overbought and readings below 20.00 considered oversold. Recently, I noted that stocks tend to peak and decline 10% to 20% and more shortly after a reading rises above 90.00, so I call that an "inflating parabolic bubble," as a bubble always pops. I also refer to a reading below 10.00 as "too cheap to ignore."
Disclosure: The author has no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.