NVIDIA in vision for market pointers

NVIDIA has become an important watch point during the U.S. stock market’s pullback on worries over North Korea.

Big picture

The graphics card maker has increasingly been in the spotlight due to its rapid growth. Its shares are up more than 1,000% over five years as the rise of such applications as AI, deep-learning, visualisation, cryptocurrencies and the proliferation of gaming drive demand for its products. NVIDIA has also come to be seen as emblematic of the technology sector that has led the broader U.S. stock market rise as the stock’s 194.57% zoom over a year to an all-time high this week far outstripped S&P 500 and Nasdaq 100 gains of 12% and 21% respectively.

Card marked

The group’s quarterly results overnight were closely watched. Whilst it easily beat on both the top and bottom line, its shares extended a fall from earlier in the day to about 6% in the ‘after hours’ market. This was widely seen as due to a ‘miss’ by its relatively small and new data centre and automotive businesses. These had been expected to pick up the baton for profits and revenue growth. The auto-facing unit generated Q2 revenues of $142m, up 19% but this missed market expectations of $146.2m. With a forward market rating of 44 times its next financial year’s earnings vs. a chip sector average of around 15, there was little margin for error for NVIDIA earnings in order to justify its valuation.

Powering down

The stock duly fell as much as 6% at the start of trading on Friday. As a result, the 44^th heaviest-weighted company on the S&P 500 looks set to continue punching above its weight on the downside, at least in terms of sentiment. It’s worth noting that the stock tends to move more sharply than the wider market. Its 5-year beta is 1.22, making it about 20% more volatile than the S&P 500.

It’s also useful to scan the group’s stock chart for signs of where traders expect shares to head from here.

• The sharp move down from NVIDIA’s all-time high of $174.56 on Tuesday marks that out as ultimate resistance
• The share has also sliced through the price at the top ($168.5; 9th June) of the swing down to $138.58 on 3rd July. At the latter, it saw aggressive buying.
• The two extremes thereby denote a distinct move, with $168.5 as potential resistance and c. $138.6 theoretical support
• NVDA also reacted to the 61.6% Fibonacci interval of the move described above. It paused there on the way back up, and saw real support on 27th July (see ellipse)
• On Friday the stock has gapped at the open and was struggling at the 61.8% Fib at the time of writing
• We expect momentum to accelerate on a clean breach of the confluence from the 21-day exponential moving average and the clearly marked rising trend between May to date
• The truth is that all of potential supports may prove to be null and void due to the sharp momentum of the stock over the last few days—visible in the Slow Stochastic Oscillator’s almost vertical decline (see sub-chart)
• Beyond the low on 27th of $157.56 and the 61.8% interval, it’s easy to envisage the share revisiting the kick-off point of its prior up leg at $138.58
• That’s where we would expect the highest volume of opportunistic buying to take the lead in the near term