NVIDIA Sets New High, Closes Below Semiannual Pivot

NVIDIA Corporation (NVDA) beat earnings estimates on Feb. 13, and the stock set its all-time intraday high of $316.31 on Feb. 21. Then came the coronavirus decline, and the stock ended last week below its semiannual pivot at $299.72. Despite this volatility, the stock is above a “golden cross” on its daily chart, and its weekly chart is positive but overbought.

After the earnings beat, Wall Street firms boosted price targets as they always do, with Cowen raising from $240 to $350. Bank of America from $300 to $350, and Bernstein from $225 to $300. In my opinion, these upgrades are meaningless, as the analysts never say to book profits when a target is achieved. When I tout a risky level, it means reduce holdings and book some profits. For NVIDIA stock, the level to do so was $299.72.

The stock is not fundamentally cheap, as its P/E ratio is elevated at 67.40 with a puny dividend yield at 0.21%, according to Macrotrends. NVIDIA has beaten earnings per share (EPS) estimates for the past five quarters, which supports the return of upward momentum for the shares.

NVIDIA stock closed last week at $294.07, up 25% year to date and in bull market territory at 136% above its Dec. 26, 2018 low of $124.46. The stock suffered a bear market decline of 57% from a high of $292.76 set during the week of Oct. 5, 2018, to the low posted on Dec. 26, 2018. As the stock stabilized from this decline, it became a buy when its 200-week simple moving averageor “reversion to the mean,” held at $134.77 during the week of June 7, 2019.

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 would follow. The stock tested its 200-day simple moving average as a buying opportunity on Aug. 29 at $160.11.

The close of $235.30 on Dec. 31 was an important input to my proprietary analytics. Its annual value level is the lowest horizontal line on the chart at $205.17. Its semiannual risky level at $229.72 was my price target for the first half of 2020. The first quarter value level is $222.38.

The Jan. 31 close of $236.43 was another input to my analytics. The monthly risky level at $264.64 was penetrated and held on Feb. 11, establishing the technical reason to forecast a positive reaction to earnings on Feb. 13.

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 $257.82. The stock is above its 200-week simple moving average, or “reversion to the mean,” at $166.37. 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 84.43, up from 82.98 on Feb. 14. As 2019 began, the stochastic reading was 8.01, with the reading below 10.00 making the stock technically “too cheap to ignore.”

Trading strategy: Buy NVIDIA shares on weakness to the monthly value level at $264.64 and reduce holdings on strength to the semiannual risky level at $299.72.

How to use my value levels and risky levels: The closing price of the stock on Dec. 31, 2019, was an input to my proprietary analytics. Quarterly, semiannual, and annual levels remain on the charts. Each calculation uses the last nine closes in these time horizons. Monthly levels for February were established based upon the Jan. 31 closes. New weekly levels are calculated after the end of each week. New quarterly levels occur at the end of each quarter. Semiannual levels are updated at mid-year, while annual levels are in play all year long.

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. A reading above 90.00 is considered an “inflating parabolic bubble” formation, which is typically followed by a decline of 10% to 20% over the next three to five months. A reading below 10.00 is considered “too cheap to ignore,” which typically is followed by gains of 10% to 20% over the next three to five months.

Disclosure: The author has no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.