Trading Nvidia After Its $40 Billion Deal for Arm Holdings

Nvidia is jumping on Monday, rallying after announcing its $40 billion cash-and-stock deal for Arm Holdings. Here's how the charts look now.
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Nvidia  (NVDA) - Get Report shares were bolting higher on Monday. While the stock is off its session highs, Nvidia still was up about 5.5% on the day.

The company is participating in Merger Monday, with the company announcing its $40 billion acquisition of Arm, a unit that was acquired by SoftBank several years ago.

Nvidia’s deal comes as the stock has been scorching hot, surging from a low around $180 in March to a recent high near $589. Given the move - which allowed Nvidia to overtake Intel  (INTC) - Get Report in market cap - it’s no surprise to see it making an M&A splash.

In the company’s announcement, Nvidia said it expects Arm to be immediately accretive to non-GAAP earnings and gross margins.

The deal includes $12 billion in cash and $21.5 billion in stock, along with other measures like earn-out potential and equity for Arm employees. Now the question is whether the jolt to the stock price can be sustained.

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Trading Nvidia Stock

Daily chart of Nvidia stock.

Daily chart of Nvidia stock.

Nvidia stock is a tricky one. The move to the upside has been intense, but with short- and long-term catalysts both filling Nvidia’s sails with a full head of wind, it’s hard to be bearish on the stock.

Unless investors decide they do not like this deal, it seems like only a market-wide correction is what can bring Nvidia down.

The semiconductor stocks have been running hot, and while last week’s pullback shows how quickly it can unravel, it’s ultimately nothing more than a buying opportunity if we don’t get any follow-through.

The $475 area did a great job of holding as support over the last two weeks. In that sense, last week’s low at $468.17 (which is within two cents of the prior week’s low) is a key level on the downside.

So long as shares are above that mark and the 50-day moving average, it’s hard to be a seller of Nvidia stock.

On the flip side, the gap-up rally has sent shares of Nvidia back above the 10-day and 20-day moving averages, and temporarily sent it over last week’s high at $522.61.

Those who are long Nvidia as a trade may be hesitant to own the stock should shares break back below those two shorter-term moving averages. That could put the $468 to $475 area in play. 

However, if those marks hold as support and shares rotate back over last week’s high, it may bring in more buyers and help elevate the stock. That will likely be a buy trigger for some short-term traders. 

On the upside, that will put the 261.8% extension near $535 on the table. Above that puts a retest of the three-times range extension and current high near $587.

Here’s the bottom line: It’s all about timeframe. If one is a long-term investor in Nvidia, they are looking to buy the bigger dips when they come. For traders, they must be more nimble. Use the short-term roadmap laid out above to help navigate.