Off and on the price chart, it’s time for contrarian investors to consider the improving big picture for Nvidia (NASDAQ:NVDA). But if you’re going to buy NVDA stock today, pricing in your own bottom-line for exposure is much better than “doubling down.” Let me explain.
It has been a solid week for NVDA stock. In Friday’s early trading, shares were up near $170.50. That puts the computing chips gorilla up 13% for the five-day period. The bid, as I’ll detail below, has also had the impact of favorably reaffirming a technical bottom in shares of Nvidia. So what gives?
Behind NVDA stock’s outperformance on Monday was an announcement that the company is buying Mellanox (NASDAQ:MLNX) for $6.7 billion. Mellanox specializes in high-speed networking chips. Nvidia beat out chip giant Intel (NASDAQ:INTC) with its own ambitions to purchase the Israeli-based outfit.
Nvidia’s acquisition is aimed to help the company fill the revenue gap left by the cryptocurrency bust and move its business and products further and deeper into data center and artificial intelligence. Mellanox is critical in successfully executing this plan as its chips help in integrating servers into one giant computer.
Data center sales accounted for roughly 25% of Nvidia’s revenues in 2018, but that segment witnessed growth of 52%. As such, moving more aggressively into this market is fully-supported by NVDA stock’s CEO who stated the company is going to “double down” on data centers. Now let’s just hope a “doubling” of sorts on the price chart isn’t required.
NVDA Stock Monthly Chart
Following NVDA stock’s swift corrective collapse from a failed rising wedge pattern back in the fall, the case for a meaningful low can be seen in the monthly chart. This view is supported by a test of 62% support based on 2016’s “pre-breakout” hammer low and a loose hold of the 50% retracement level dating back to the financial crisis.
More recently, the deep correction has received confirmation that a bottom is actually in place over the past month. This is backed by February’s price action, which took out the high of the prior month’s bottoming candlestick as shares penetrated $160.71. That’s big news on the price chart of NVDA stock. Also of benefit, Nvidia’s oversold monthly stochastics has just signaled a crossover which should support a long entry today in NVDA stock.
For managing exposure with this type of entry, I’d recommend a stop beneath $154 in shares of Nvidia. This amounts to manageable risk for a volatile stock like NVDA of about 10%, based on going long for $170.50.
Technically, $154 is also narrowly beneath February’s closing price of $154.24 and the March opening print of $156.27. Those levels look key to the bull case. As well, $154 is in the lower one-third of Monday’s bullish MLNX stock reaction. Ultimately, that would be troublesome price action we’d rather not see being revisited.
Bottom line, the provided risk allowance looks appropriate for a long position in NVDA stock. And as much as we hate to say it or see it, this guards bulls against today’s monthly bottom failing and potentially turning into a trickier double-bottom technical effort on the price chart.
Investment accounts under Christopher Tyler’s management do not currently own positions in any of the securities mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.
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