(Bloomberg) — Nvidia Corp.’s $430 billion three-day selloff. causes traders to turn to technical analysis for clues as to where the bottom might be.
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The stock has fallen 13% since Microsoft Corp. sold last week. briefly overtook it as the world’s most valuable company. That has pushed Nvidia shares into a technical correction for the first time since April — when a stock falls 10% or more from a recent peak. The stock is expected to extend losses on Tuesday, falling as much as 2.4% in pre-market trading.
According to Buff Dormeier, chief technical analyst at Kingsview Partners, the abrupt turnaround comes with some clear signs of capitulation.
“The fact that this is happening after all this good news — the split, which becomes the largest company — is concerning,” he said, referring to the 10-for-1 stock split announced last month. Dormeier sees short-term support around the $115 level, with the next significant level at $100.
The $115 area for Nvidia stock is close to a key Fibonacci retracement level, a tool used by technical analysts to identify support or resistance lines for stocks and other assets. The 38.2% retracement from the stock’s intraday low in April to last week’s record high is about 2% below Monday’s close.
Although technical analysis – which looks for insight into historical trading patterns – is not precise, it can provide a useful roadmap for investors.
Nvidia has soared this year amid relentless demand for its chips that dominate the artificial intelligence computer market. In the latest leg of the rally, the stock rose 43% from the May 22 earnings report and stock split announcement to its June 18 peak when the stock closed with a market value of $3.34 trillion, surpassing Microsoft by $3 .32 trillion. Despite the three-day decline since then, Nvidia is still up 139% this year.
For Ari Wald, head of technical analysis at Oppenheimer, the longer-term trend is more important than any specific level for Nvidia, and it remains strong as the stock is still well above its 50-day moving average around $101 and 100- days moving average trades. for $92.
“Typically, big tops are a process, with several rounds of buying and selling, after which price momentum creeps in and fails to hold the key levels. We haven’t seen anything like this yet,” he said in an interview. “This is exactly how Nvidia is acting.”
While he believes the long-term uptrend remains intact, he, like Dormeier, is keeping an eye on the $100 level.
“For an uptrend stock like Nvidia, breaking that first level of support wouldn’t be a problem,” said Bruce Zaro, chief technical strategist at Granite Wealth Management. However, a drop below $100 would be possible, he said.
“That may not have long-term implications, but it would be a sign that you need to be patient, especially at a time when the market is likely to be volatile and on a downward trend as we wait for the elections and the pressure from the Fed on interest rates. ”
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