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How to Trade Nvidia After Chipmaker Reports Earnings

Nvidia was looking great but is now tumbling  ahead of earnings. Is it an opportunity or a warning? Let's look at the key levels on the chart.

For as much love as Nvidia  (NVDA) - Get NVIDIA Corporation Report gets, the stock has been eerily quiet over the last several quarters.

One could almost say the same thing about Advanced Micro Devices  (AMD) - Get Advanced Micro Devices Inc. Report

While both sport big gains from the March 2020 low and from previous points beyond the past several quarters, the stocks have spent plenty of time consolidating.

AMD already reported earnings in January and we saw a three-day dip as a result even though the results were solid. Will Nvidia also remain stagnant?

Shares hesitantly traded down to the 200-day moving average amid the coronavirus selloff, holding up much better than most stocks. The stock then rallied 225% to its high in September, topping near $590.

Earlier this month, Nvidia gave bulls a great setup, breaking out over the $590 level - which also was resistance in November, giving it a double-top look - and consolidating above $600.

At Tuesday’s low, shares were down almost 11% over the prior two days as the stock got caught up in Nasdaq’s tumble. Let’s see if earnings can change the narrative.

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Trading Nvidia

Daily chart of Nvidia stock.

Daily chart of Nvidia stock.

Nvidia is set to report earnings after the close on Wednesday. With momentum coming out of the stock over the last two days, it offers investors a better entry opportunity even if sentiment has soured a bit.

I like the way shares are bouncing off the 50-day and 100-day moving averages and are now hovering near the $550 mark. That said, the breakout and rapid unwind ahead of earnings makes the setup more difficult.

On the upside, bulls want to see shares reclaim downtrend resistance and the 10-day moving average. That will require a move above $578. However, they will mostly want to see Nvidia stock get back above $590.

If it can do that, then $600-plus is in play, as well as new highs. About a year ago, this was the quarter that spurred a big breakout for Nvidia only for it to get hit a few days later amid the Covid-19 selloff.

If we get a repeat performance and the stock clears the current high near $615, the 161.8% extension north of $660 could be on the table.

On the downside, a break of Tuesday’s low could put range support near $500 in play. Below that and the 200-day moving average is possible, currently near $480.