The Reversal at Nvidia Shocks the Tech World. What the Charts Indicate for the Stock’s Next Move?

When Nvidia’s earnings came out, we thought we could all breathe a sigh of relief. However, few of us could have predicted the rollercoaster that was about to follow.

Before the earnings release, the stock did something it hadn’t done in the past two years – it sold off ahead of the announcement. Previously, shares had traded near their record highs when reporting and had even rallied into the announcement.

In Thursday’s case, we saw a recent peak-to-trough pullback of nearly 12%, followed by a slight rebound to its 50-day moving average. Technically, there were reasons for optimism, and fundamentally, the news was excellent, as was the guidance. Everything looked promising right out of the gate.

Watch the opening gap…
Traders were closely monitoring Thursday’s opening gap. Shares opened at $195.95 and peaked at $196. Then the movement reversed.

We’ve seen Nvidia shares gap higher on strong earnings before. In late August, shares jumped 6.6%, traded slightly higher, and then gave back all their gains. Clearly, how we close on earnings day matters.

On Thursday, that opening gap filled, and shares moved lower, creating a bearish “engulfing” candle, which is not a good sign for the next few days. The hope was that Thursday’s opening gap would not only hold but also start a new leg up toward the highs around $210. That plan is temporarily on hold as we reassess Thursday’s price action.

Momentum
Looking at the RSI, we didn’t get a positive push back above the midline, which would have signaled a bullish reversal. We are now watching the lower oversold levels around 30.

Historically, any reading below 35 for NVDA has been considered a buy. Over the past three years, the stock has only been “oversold” once.

The next phase
Expect the shares to consolidate. In the three-year chart above, you can see that after a strong earnings period, there are consolidation phases—see August 2023.

Expect the stock to trade sideways around its 50-day moving average while it builds momentum for another leg higher. The upside resistance is Thursday’s high at $196, and the downside support is around $175. Given the history of strong results followed by sideways price action, it will likely take some time before the trend resumes upward.

Downside risk
The former trader in me always thinks about the worst-case scenario and asks, “what if something changes?” NVDA shareholders have already experienced such volatile price action.

Thursday was a very frustrating day, but the long-term trader and investor can just sit back and relax. If the price breaks support, a deeper decline to the 200-day moving average at $153 is possible, which would signal a sharper market sell-off. I don’t expect that to happen, as we have strong earnings and guidance as tailwinds. History shows that if it does occur, it would be an excellent buying opportunity.

For those of us expecting Nvidia to play Atlas and support the market, we realized that Atlas shrugged. Bitcoin’s collapse and Fed uncertainty were too much for Nvidia to handle on that day.