How to Trade Nvidia After Bounce Back From March Lows

Nvidia has been on fire in recent weeks. Can it hold up to downgrades and a correction in the market? Let's look at the stock.
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Despite a downgrade to start the week, Nvidia  (NVDA) - Get Report was marginally higher on Monday. The advance also comes despite a 2% spill in the S&P 500.

After getting caught up in the broad market decline in March, Nvidia investors have been enjoying a powerful upside rally. Nvidia stock bottomed near $180 on March 18 and has rallied 45% since.

Now trading near its pre-earnings levels from February, many consider the stock an outperformer relative to its sector and the broader market. 

Interestingly, the analysts who downgraded the stock still like the company’s long-term catalysts (as they should). 

However, they don’t care for the valuation. Craig-Hallum analysts downgraded Nvidia to hold from buy, while trimming their price target to $300 from $325. Keep in mind, the price target still implies roughly 15% upside.

After such a robust rally and a stock that is clearly displaying relative strength, what should investors make of Nvidia?

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Trading Nvidia Stock

Daily chart of Nvidia. 

Daily chart of Nvidia. 

Nvidia temporarily fell below its 200-day moving average, but was quick to reclaim this mark after testing the $190 level amid several sessions in mid March. $190 proved to be a pivotal mark for the stock, as shares held support on several tests into this area before ricocheting higher.

It didn’t take long for Nvidia to then reclaim the $230 to $240 area, which was a consolidation zone in December and the first few months of 2020. In fact, after reclaiming this area, it acted as support in early April (shown on the chart with a purple arrow).

On the upside, the $270 to $280 area has been acting as resistance, as Nvidia has been unable to penetrate this area and reclaim prior uptrend support (blue line). From here though, we now have our upside and downside levels mapped out.

For investors who believe more upside is in store, they need to see Nvidia stock push through this $270 to $280 area. Above puts a gap-fill up toward $290 in play, with $300-plus on the table above that.

On the downside, holding the 50-day moving average would be the ultimate display of relative strength. Should it give way though, see that the $230 to $240 consolidation zone - which remember, has already acted as support this month - holds as support once again.

Below opens Nvidia stock up to a retest of the 200-day moving average, with $190 to $200 in play below that.