Nvidia (NVDA) will soon be in a downtrend toward its annual value level at $131.80 or be in an uptrend toward its semiannual risky level at $213.01. The semiconductor giant has a duel problem when it reports earnings after the closing bell on Thursday, May 16. There's the issue of reduced demand for their computer chips and the risk of adverse effects from the China Trade War.
The stock has a solid 19.5% year to date gain and is in bull market territory 28.2% since trading as low as $124.46 on Dec. 26. The longer-term performance is not pretty. The stock set its all-time intraday high of $292.76 on Oct. 2 and declined by 57% to the Dec. 26 low. This backdrop should result in extreme up or down volatility following its earnings report.
Analysts expect Nvidia to report earnings of 79 cents a share when they report results after the closing bell on Thursday, May 16. Value investors will ignore this stock as its P/E ratio is 27.46 and dividend yield of 0.39%, according to Macrotrends. Wall Street opinions on the stock are all over the map. On April 23, Jefferies raised its price target to $227. Others say that reversals in cryptocurrency between November and February resulted in numerous downgrades. The consensus target is now $187. On the bearish side of the ledger if the company does not offer positive guidance, particularly in data center demand, the stock could fall to $100. Therefore, charts are important!
TheStreet.com indicates that data center demand and stock valuation are important factors foe Nvidia.
From AAP's Nvidia earnings preview post on Monday:
First and foremost will be management's commentary regarding not only the most recent tariff increase, but the potential impact that additional tariffs threatened by President Trump would have on the business. Recall, this round of tariffs (the increase to 25% from 10% on $200 billion of Chinese imports) is not heavily tied to technology, however, should tariffs be levied on an additional $300+ billion in goods, it is expected to cause a material impact on tech earnings as tech products are the ones that have thus far been spared.
The Daily Chart for Nvidia
Courtesy of Refinitiv XENITH
The daily chart for Nvidia shows the 57% bear market from the Oct. 2 all-time intraday high of $292.76 to the Dec. 26 low of $124.46. During this downtrend a "death cross" formed on Nov. 13. A "death cross" occurs when the 50-day simple moving average falls below the 200-day simple moving average and indicates that lower prices lie ahead. Dec. 26 was a daily "key reversal" as the Dec. 26 close of $133.10 was above the Dec. 24 high of $129.97. This signal projects a tradeable rally in 2019. The close of $133.50 on Dec. 31 was the input to my proprietary analytics and still in play is its annual value level at $131.80 last tested as a buy level on Jan. 30. Also, in play is its semiannual risky level at $213.01 which is my price target on a positive reaction to earnings. The value level for May is below the chart at $81.18. The second quarter risky level is $281.93.
The Weekly Chart for Nvidia
Courtesy of Refinitiv XENITH
The weekly chart for Nvidia is negative with the stock below its five-week modified moving average of $173.08. The stock is above its 200-week simple moving average or "reversion to the mean" at $132.97 which is a buy level. The 12x3x3 weekly slow stochastic reading is projected to fall to 69.89 this week down from 78.14 on May 10. As 2019 began the stochastic reading was 8.01 below 10.00 which made the stock technically "too cheap to ignore".
Trading Strategy: Buy weakness to the 200-week SMA at $132.97 and to its annual value level at $131.80 and reduce holdings on strength to my semiannual risky level at $213.01. Making a buy or sell recommendation pre-earnings is a coin-flip!
How to use my value levels and risky levels:
Value levels and risky levels are based upon the last nine weekly, monthly, quarterly, semiannual and annual closes. The first set of levels was based upon the closes on Dec. 31. The original semiannual and annual levels remain in play. The weekly level changes each week; the monthly level was changed at the end of January, February, March and April. The quarterly level was changed at the end of March. 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 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 its time horizon expires.
How to use 12x3x3 Weekly Slow Stochastic Readings:
My choice of using 12x3x3 weekly slow stochastic readings was based upon back-testing 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. Recently I noted that stocks tend to peak and decline 10% to 20% and more shortly after a reading rises above 90.00, so I call that an "inflating parabolic bubble" as a bubble always pops. I also call a reading below 10.00 as being "too cheap to ignore."
Disclosure: The author has no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.