Trading Nvidia - Is a Pullback Coming?

Nvidia is hitting all-time highs on Wednesday, but investors are wondering if it's rallied too far, too fast. Here's how to trade the stock.
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I am running out of adjectives to describe the rally in tech, and more specifically, in names like Nvidia  (NVDA) - Get Report.

The stock opened higher by another 6.4% on Wednesday morning, adding to Tuesday's 3.3% gain and this week’s 5.1% rally.

Those numbers may seem modest - particularly stacked next to a name like Tesla  (TSLA) - Get Report — but it comes with strong momentum. While Nvidia’s recent gains may be coming from the company’s recent GPU release, consider how much this name has rallied lately.

The stock is working on its fourth straight day of gains and ninth rally in the past 10 trading sessions. It helps that it's now gaining new price target hikes from Wall Street. Short of a massive reversal this week, Nvidia stock will log its sixth straight weekly gain.

It’s also working on its sixth straight monthly gain and its 12th monthly gain in the last 13 months. In other words, the momentum began before the coronavirus temporarily derailed the rally.

At Wednesday’s high, the stock has risen 226% from the March low. Let’s look at the charts to see what may be next.

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Trading Nvidia Stock

Daily chart of Nvidia stock.

Daily chart of Nvidia stock.

In late July, Nvidia shares broke out over $425 resistance. A slight dip nearly sent the stock back to $425 and the 20-day moving average before bulls bought the dip and sent shares ripping higher.

Since then, the stock has been enjoying swift gains. Is the gravy train about to end?

That may be an extreme way of looking at it, but the run may need a pause at this point. Particularly after shares opened at the three-times range extension on Wednesday before pulling back off those highs.

With an elevated RSI reading (blue circle) and shares well above the 20-day moving average, shares certainly are extended. 

If Nvidia shares resume the upside run, look for the stock to clear the three-times range extension, putting the 361.8% extension in play up near $670.

On a move below $550, the 261.8% extension could come into play as support near $535. Below that puts the 20-day moving average in play, followed by a possible visit to the post-earnings low at $475.01 and maybe even the 50-day moving average.

If and when the market “pulls the rug,” there’s no telling how steep the decline may be or how fast it could play out. Just as the rally to the upside was very difficult, if not impossible to predict.

For now, this is a buy-the-dips environment until proven otherwise, but that doesn’t mean the run can continue unchecked forever. It would be wise for some traders to raise their stop-losses and/or book some profit.