Nvidia Stock Is Setting Up to Burst Higher

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Nvidia (NASDAQ:NVDA) has been on the mend lately, rallying to new 2019 highs. The price action has been mixed since the company reported its earnings on Nov. 14. Initially, it looked like Nvidia stock was going to pull back after the results. It’s held up since then, though, and it’s got investors wondering what could be next.

4 Things to Keep in Mind About Nvidia Stock After Earnings Miss

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Will Nvidia stock push through resistance and move higher now? The charts appear to suggest that NVDA is poised to rally further. The only thing that could seriously derail NVDA is a worsening trade-war situation and/or a stock market decline.

As the third quarter of 2018 was coming to a close, Nvidia stock was looking to push through $300. The bulls — riding a multi-year rally of hundreds of percent — were looking for even more gains. By the end of Q4, the stock had suffered a peak-to-trough decline in excess of 50%. It was one of the most brutal unwinds I’ve seen in a high-quality stock in quite some time.

Caught up in the crypto mess, Nvidia’s revenue, earnings and margins still haven’t fully recovered. But analysts’ average forward estimates now predict year-over-year growth, not declines. That’s got investors feeling bullish, a sentiment that shows on the charts.

Let’s take a look.

Trading Nvidia Stock

chart of Nvidia stock

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Last month, amid a resurgence by the semiconductor space, NVDA stock burst through its prior 2019 highs near $193. Since then, it’s been consolidating in a tight zone between $205 and $212, riding its 20-day moving average higher.

When Nvidia reported its earnings, NVDA stock began to slip lower. It temporarily broke below the 20-day moving average and approached $200. In all honesty, it looked like it would not reach the 20-day. However, Nvidia stock snapped higher and closed above the 20-day, before making new highs the next day.

We don’t have the green light just yet, as resistance continues to hold NVDA stock in check. But that snap-back action was impressive. For Nvidia stock to move meaningfully higher,  the 20-day moving average has to continue acting as support and move over the current 52-week high, which is now near $215.

The rest of the space has been surging to new highs. That includes Intel (NASDAQ:INTC), Advanced Micro Devices (NASDAQ:AMD), Broadcom (NASDAQ:AVGO), Qualcomm (NASDAQ:QCOM) and others. So why isn’t Nvidia?

As you can see on the chart below, Nvidia stock still has a ways to go before hitting its prior highs.

Chart of NVDA stock

Click to Enlarge

That nasty gap down in November 2018 took a long time to recover from. After rallying from that point, Nvidia stock looks much healthier. Going forward, let’s see if NVDA stock can now fill its October 2018 gap near $228. That’s also near where the 38.2% retracement comes into play from the October 2018 high to the December low.

If NVDA climbs above $228, $250 is possible.

Remember to take it one step at a time. If NVDA’s current support fails, look for the former highs between $190 and $193, as well as the 50-day moving average, to support NVDA stock. If it moves above the resistance level, $220-plus is possible.

Valuing NVDA Stock

Here’s the bad news for Nvidia: its sales and earnings are still dropping as the crypto overhang has been brutal. It sucked all of the momentum out of NVDA stock, decimating sentiment towards it.

On average, analysts are calling for an 8% decline in revenue this year, along with a 16% year-over-year decline in earnings. Oof. That’s a tough pill to swallow.

But here’s the good news: Analysts, on average,  predict a return to robust growth in 2020. The company has already reported its results for the first three quarters of the year, with just one left to go. As readers know, the stock market is a forward-looking mechanism. It prices securities based on what they are expected to do, not based on what they have done.

While the average estimates call for NVDA’s revenue to grow 19% and its earnings to jump roughly 30% in 2020, the return to growth is more important than the amount of the growth itself, if that makes sense. The fact that NVDA has put the worst behind it matters more than if it grows earnings 24% or 30% in the coming year.

Remember, Nvidia will play a big role in non-cyclical tech growth. A year of pain from the crypto fallout won’t change that.

Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell. As of this writing, Bret Kenwell is long AVGO and NVDA.

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