Trading Nvidia on Earnings - Breakout or Breakdown?

Nvidia stock has been relatively muted since the chipmaker reported earnings. Here's what to watch for on the charts.
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Nvidia  (NVDA) - Get Report stock is mixed after the graphics-chip specialist reported fiscal first-quarter earnings. The shares are up about 2% on Friday, as investors digest the results.

It’s not a question of whether it was a good quarter — because it absolutely was — but rather,a question of whether the stock’s rally already accounts for those results.

Coming into the report, Nvidia stock was up 25% from the May lows and more than 94% from the March lows. Despite rising expectations, it still beat expectations.

Earnings of $1.80 a share beat estimates by 12 cents, while revenue of $3.08 billion grew 39% year-over-year and beat expectations by $80 million. Guidance came in strong, too.

So as much as investors likely wanted to take some profits on this number, it’s hard to get too bearish on Nvidia. 

Further, with so many companies starved for growth, investors are willing to pay higher premiums for stocks with growth — particularly when it’s robust like in the case of Nvidia.

Let’s take a closer look at the charts.

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Trading Nvidia Stock

Daily chart of Nvidia stock.

Daily chart of Nvidia stock.

This situation is rather unusual and we’re seeing a pretty quiet day thus far in Nvidia stock. 

In fact, after Monday’s gap up - where the shares gained another 3% on top of Friday’s 5.75% rally - it’s been a very mellow week.

Therefore, I want to use this week’s trading range as a barometer for Nvidia. That range is highlighted in blue on the chart above, with a low of $347.22 and a high of $363.72. 

A break on either end of this range could create a continuation play in the stock.

Over this week’s high could put the 138.2% extension — measured from the February high to the March low — in play near $368. Above that and the 161.8% extension up near $399 is a real possibility in the coming weeks.

On a break of the lows, a gap fill down to $339 is the first spot to watch, along with the 10-day moving average. But a larger pullback after such a heady run wouldn’t be surprising.

If that’s the case, keep an eye on the $315-to-$320 area. That was the prior high from February. Below that and a retest of the $280-to-$300 area would give longer-term investors a great buying opportunity.