It’s time to take an in-depth technical look at NVIDIA Corp. (NASDAQ: NVDA) . Our goal here today is to examine how the stock is behaving so we can use that examination as a lens through which to evaluate the stock as a possible investment opportunity.
Technical analysis is predicated on the idea that all important information is already interpolated by buyers and sellers of a security, so the only thing left to really interpret and predict the action is that behavior itself. For market timers, one of the most important tools we have at hand is the key indicators that show whether the stock is stretched in one direction or the other too much, too far, or too fast. In other words, is the stock overbought, oversold, or somewhere in the middle?
For that, we first turn to the RSI measure. The 14-day RSI is the standard flag-bearer for this type of analysis. Right now, for NVIDIA Corp., the measure stands at 33.74%. That shows where the stock is as far as the degree to which it is becoming overbought or oversold relative to its price history.
If we look at other overbought/oversold oscillators, we can get even more perspective. The stochastic measure is a good example. Right now, the stock over the past month of action shows a score of 22.52% on the 20-day fast stochastic.
In an even broader sense, NASDAQ: NVDA has recently been showing trading action that suggests an overall bullish posture on the chart according to trend-related measures such as a major moving average. In this case, we are looking at the relative positions of the 50-day and 200-day simple moving averages. The implication, of course, is that money is generally treating this stock in a positive manner in terms of capital flows.
Next, we want to look at participation levels. Our conviction on a stock in terms of its technicals is almost entirely subject in the end to the type of volume of trade we see going on in the stock. Patterns of action gain meaning strictly through volume levels. In other words, you need plenty of people playing the game for the score to matter. At this point, relative volume measures have been weak, indicating lack of interest among traders, investors, and money managers for the stock over the past month. As it stands at present, the stock might find important action around key levels on the chart, which is something else we like to take a close look at.
One of the best ways to define key levels is through derivations built off of the Fibonacci series. This is widely used by professional firms in the market. The Fibonacci series is a set of numbers derived from adding the prior number to the next one: 0,1,1,2,3,5,8,13,21,34, etc. You will note that each number is the sum of the prior two numbers. The series has been found to exemplify the mathematics underlying many growth systems. The ratio of one number to the next in the series approaches 61.8% (or 38.2%, depending on which direction you move) as a limit. In markets, the key levels are often played at retracements defined by this ratio and its associated connections. In this case, the critical 38.2% level drawn off the 52-week high of $218.67 sits at $168.58. NASDAQ: NVDA also has additional resistance above at the stocks 200-day simple moving average, which sits at $ 152.69.
So far, we have looked at oscillators, moving average trends, and participation levels. However, sometimes, there is information carried in simply the degree of movement in a stock. For example, over the past trading month, NASDAQ: NVDA has made a move of -20.94. By comparison, over the trailing 100 days, the stock is outperforming the S&P 500 by 8.19, and its gotten there by action that has been more volatile on a day-to-day basis than most other stocks on the exchange.
Obviously, that tells us a ton about this name. To even drill down deeper into the movement, we can see that the stocks recent action has come on a historical volatility score of 39.77%. That number is derived from the standard deviation of returns of some hypothetical trader buying the stock at a given average price during the specified period. If we want to look at range of action in a simplistic sense, the best way is to use the average true range over the most common reference time period, so we are staying on the same page with the market. In this case, the 20-day ATR as a percentage of its 20-day moving average comes in at 2.93%.
We plan to update our take on this stock as its pattern of behavior progresses from here.
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