Nvidia (NVDA) has been on a massive tear higher, but now dipping with the rest of the market on the recent big negative themes. Why the dip and will buyers jump in soon?
NVDA Dip Ahead? Will Fibs Hold for Buyers?
The last time we looked at Nvidia (NVDA), the most dominant player in graphics and artificial intelligence hardware and software, the stock was consolidating around the $220 handle after an August spike higher from the $190 area. We argued that a dip fueled by broad risk sentiment would likely draw in longer-term traders looking to play the strong fundamental story, as well as technical traders looking to play the longer-term uptrend.
It looks like that was the scenario that played out as NVDA dipped to the $200 handle in September, where buyers took back control with the help from the broad market as debt ceiling fears subsided in October and a positive season of U.S. earnings generally lifted equities higher in November.
This biggest boost for the stock, though, came from both Facebook’s announced refocus to the metaverse at the end of October and another round of impressive earnings numbers. The former event accelerated interest on metaverse related services and products, like the graphics processing power that NVDA brings, prompting a swift move from around $250 to above $300, eventually topping out just under the $350 in November after the earnings release.
Since then, NVDA has dipped with the rest of the market as Omicron variant and inflation/monetary policy tightening fears pulled down risk taking behavior (and possibly lots of profit taking given the gains in risk assets this year). The stock is now trading just below the $280 handle, sitting comfortably around the Fibonacci retracement area marked on the daily chart above.
Given that this pullback is mainly driven by negative broad risk sentiment, we think this pullback is one to watch to play the longer-term theme that Nvidia will continue to have a hand in many of the current and emerging technologies…and make tons of cash from it. If we see broad risk sentiment shift back to positive, or at the very least, fall back from extreme levels, then NVDA could resume the uptrend and get back to that $350 handle on its strong fundamental outlook.
We’ll be on the look out for that scenario to play out before considering a potential long position, but what do you think? Is this retest of the Fibs area a time to start nibbling long? Or should we wait to see if pandemic and central bank tightening fears pass?
Let me know in the comments below, and as always, remember to never risk more than 1% of a trading account on any single trade. Adjust position sizes accordingly. Create your own ideas and don’t simply follow what I do.
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