Nvidia Stock Faces Potential Downturn Amid AI Hype

The incredible uptrend that investors in Nvidia Corp. have enjoyed this year, fueled by the artificial intelligence (AI) hype, may be coming to an end. However, history suggests that instead of a straight downturn, investors may have to weather some volatile trading within a relatively stable range before the uptrend resumes.

On Wednesday, the stock (NVDA) closed at $425.54, marking a 4.7% decline and landing 10.4% below the record close of $474.94 on July 18. This drop was attributed to a disappointing earnings report from Super Micro Computer Inc., a key supplier for Nvidia.

According to Wall Street experts, a correction is defined by a decline of at least 10% to 20% from a significant peak, while a drop of 20% or more is considered a bear market.

Chart followers will find it noteworthy that the stock closed below the widely tracked 50-day moving average (50-DMA) for the first time since January 6, 2023. On Thursday’s morning trading session, the stock experienced a modest 0.5% bounce but remained below the 50-DMA, as reported by FactSet.

Despite the recent correction, Nvidia’s stock still boasts an impressive year-to-date increase of 192.6%, significantly outpacing the PHLX Semiconductor Index (SOX) with a climb of 43.7% and the S&P 500 (SPX) with an advance of 17.2%.

Read: Nvidia is ‘domination’ and predicts unlocking $300 billion in AI revenue by 2027, analyst says.

For many chart watchers, the 50-DMA serves as a short-term trend indicator. A stock above this line is regarded as being in an uptrend, with the strength of the trend correlating to the amount of time spent above the line.

Nvidia’s Stock Performance: A Historical Streak

Until Wednesday, Nvidia’s stock had impressively closed above the 50-DMA (50-day moving average) for 146 consecutive trading sessions, a remarkable feat since its public debut in January 1999. This striking stretch stands as the second-longest in the company’s history.

The record-breaking streak of consecutively closing above the 50-DMA lasted for an impressive 255 sessions. However, it eventually came to an end on February 23, 2017. The second-longest streak, consisting of 143 sessions, concluded on October 28, 2020.

Following its break from the super-50-DMA streak in 2020, Nvidia’s stock experienced some volatility but remained relatively stable for several months before resuming its upward trend with a significant spike.

Looking at the chart provided above, we can observe that once the stock breached the 50-DMA, investors shifted their focus towards the 200-DMA (200-day moving average), considered by many as a crucial threshold separating longer-term uptrends from downtrends. Despite a brief dip below the 200-DMA in mid-March 2021, it acted as a robust support level.

After the extraordinary super-50-DMA streak, the stock fluctuated around the line with a slightly negative bias for a few months before regaining its upward momentum.

Interestingly, during this period, the stock never truly posed a threat to the 200-DMA.

In the current technical landscape, there are a couple of downside levels to monitor closely. One key level is the bear-market threshold, which sits at a 20% decline from the July closing high. This level is currently priced at $379.95. Additionally, investors should keep an eye on the 200-DMA, which presently stands at $269.63 and has shown consistent daily growth of $1.65 over the past 10 days.

Leave a Reply

Your email address will not be published. Required fields are marked *

Related Posts