Skip to main content

Nvidia (NVDA) reports its latest results after the closing bell today, with the stock consolidating a bear-market decline of 57% from its all-time intraday high of $292.76 set on Oct. 2 to its Dec. 26 low of $124.46.

This stock was a popular high-flying momentum stock until its bull market ended in October. The stock is below its pivot for August at $154.17, which indicates risk to its reversion to the mean at $141.57, where investors can buy the stock once again. 

The stock closed Wednesday at $150.07, up 12.4% year to date and up 20.6% from its Dec. 26 low. Looking at 2019 alone, Nvidia is in bear-market territory, 22.4% below its 2019 high of $193.47, set April 11.

Given a positive reaction to earnings, shares of Nvidia could gap above their 200-day simple moving average at $162.22, and this would lead to a golden cross next week.

A golden cross occurs when the 50-day simple moving average rises above the 200-day simple moving average and indicates that higher prices lie ahead.

Analysts expect Nvidia to report earnings of $1.14 to $1.16 a share. Value investors will continue to ignore this stock as its price-to-earnings multiple is 32.87 and dividend yield is just 0.42%, according to Macrotrends.

Nvidia concentrates on chips for gaming and mobile computing and for automobiles. Nvidia said it wanted to purchase Mellanox (MLNX) in March, but the deal faces scrutiny from Chinese regulators, and we know the pressures in Hong Kong and the trade war.

In April, Nvidia reported a 39% year-over-year decline in gaming revenue associated with Nintendo (NTDOY) . Nvidia's data-center revenue could be growing to save the quarter.

Nvidia Reports Earnings on Thursday: 7 Important Things to Watch

Cloud demand, gaming GPU trends and Mellanox deal commentary are among the things worth watching as the GPU giant reports.

Nvidia is a holding in Jim Cramer's Action Alerts PLUS member club. Want to be alerted before Jim Cramer buys or sells NVDA? Learn more now.

The Daily Chart for Nvidia

Image placeholder title

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 projected a tradeable rally in 2019. The close of $133.50 on Dec. 31 was the input to my proprietary analytics. Its annual value level at $131.80 was a buy level on Jan. 30. This level was nearly tested at its June 3 low of $132.60. The June 29 close of $164.23 was also an important input to my analytics. This generated quarterly and semiannual risky levels at $247.28 and $251.81, respectively. The close of $168.72 on July 31 was an input that generated a monthly pivot for August at $154.17. which has been a magnet since Aug. 5. A positive reaction to earnings that causes a price gap above its 200-day SMA at $162.22 will eventually generate a golden cross over the next several days.

The Weekly Chart for Nvidia

Image placeholder title

Courtesy of Refinitiv XENITH

The weekly chart for Nvidia is negative, with the stock below its five-week modified moving average of $159.11. The stock is above its 200-week simple moving average or reversion to the mean at $141.56, which is the level at which to buy this stock. The 12x3x3 weekly slow stochastic reading is projected to fall to 57.61 this week down from 62.22 on Aug. 9. 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 reversion to the mean at $141.57 and add to positions at its annual value level at $131.80.

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 annual level remains in play. The weekly level changes each week. The monthly level was changed at the end of each month, the latest on July 31. The quarterly level was changed at the end of June. 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.