To The Moon

Nvidia Is Trading Near All-Time Highs. What Does Its Chart Say?

$NVIDIA(NVDA)$   hit an all-time intraday high this past week after rebounding some 120% from its April lows. What does the AI-friendly chip giant's chart and fundamental analysis say could happen next?

Let's check things out:

Nvidia's Fundamental Analysis

We're still more than a month away from hearing from Nvidia about its Q3 quarterly results, which will likely come in late November.

But as of right now, the Street is looking for the high-end GPU designer to report $1.24 in adjusted earnings per share for the period on roughly $54.7 billion of revenue. 

That would represent a 53.1% gain from the year-ago period's $0.81 in adjusted EPS, as well almost 56% growth from the $35.1 billion in revenues seen 12 months earlier.

That kind of sales growth would be more than impressive for almost any other firm, but would actually represent a deceleration from the growth pace NVDA has experienced over the past two years or so.

The advent of big capex up-spend on artificial-intelligence-focused infrastructure meant Nvidia boasted annual sales growth well into three-figure percentages during much of 2023 and into 2024. 

But the "law of large numbers" eventually kicks in for everyone, even Nvidia -- and that's really not a bad thing at all. After all, NVDA's stock currently trades at about 30 times forward-looking earnings and 53 times trailing earnings.

Expensive? Maybe, but a growth rate at this kind of scale is hard to put a price on. Less than 1% of Nvidia's entire float is held in short positions, so we know there aren't a lot of NVDA out there.

In fact, 33 of the 38 sell-side analysts that I know of who cover NVDA have revised their Q3 earnings estimates higher since the quarter began, while just two have lowered their forecasts. (Three have left their estimates unchanged.)

Nvidia's Technical Analysis

Now let's check out NVDA's chart going back some eight months and running through Wednesday afternoon:

Readers will see that Nvidia bottomed out at $86.62 intraday on April 7, forming a bullish "cup-with-handle" pattern in the process (marked with a curving purple in at the chart's left).

The stock then rallied from that early April low into late July, which I've illustrated with a Raff Regression model (the orange-shaded area above).

However, NVDA next hit stiff resistance from late July through late September, bumping its head up against the Raff Regression's ceiling many times before finally cracking through on Sept. 30.

This resistance formed the upper trendline of what's known as an "ascending-triangle" pattern of bullish continuance, marked with thick black lines at the chart's right.

The top black line now serves as Nvidia's pivot at the $184 level. We can see that since cracking this line in recent days, the stock has tested it from above and found support. (NVDA was trading at $187.81 Monday morning as I wrote this after hitting a $195.62 all-time intraday high on Friday.)

Meanwhile, Nvidia's secondary indicators are postured quite bullishly.

Its Relative Strength Index (the gray line marked "RSI" at the chart's top) is improving and flashing a better-than-neutral signal, but isn't yet technically overbought.

Similarly, all three components of Nvidia's daily Moving Average Convergence Divergence indications (or "MACD," marked with black and gold lines and blue bars at the chart's bottom) are in good shape.

The histogram of the 9-day EMA (blue field) is above the zero-bound, as are the 12-day Exponential Moving Average (or "EMA," denoted with a black line) and 26-day EMA (the gold line). The best part for the bulls is that the 12-day line is running above the 26-day line and both lines are still rising. 

An Options Option

A bullish trader might get involved with Nvidia by initiating a "buy-write" strategy.

This involves purchasing a stock and simultaneously "writing" (i.e. selling) a covered call against that equity position to reduce the investor's net basis. Here's an example:

-- Buy 100 shares of NVDA at or close to $188.  

-- Sell (write) one Nov. 21 $210 call for about $4.25. This call will likely expire after Nvidia's 3Q earnings come out.

Net basis: $183.75.

In the example above, selling the covered call will significantly lower the equity position's net basis.

Should the shares be called away in November, the trader would still realize a 14.3% profit. That's fine, but this trade is really about getting long NVDA while finding ways to reduce net basis.

The trader in the example above could theoretically keep writing covered calls against the stock for as long as the equity position exists, further and further reducing net basis.

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