Shares of Nvidia (NASDAQ:NVDA) have come under serious selling pressure recently. Nvidia stock has fallen nearly 20% from the late April highs at $190. Much of the decline is likely due to the ongoing trade war and tariff tantrums with China. Although NVDA stock will likely remain volatile in the near term, volatility also provides opportunity. Time to be a buyer of Nvidia on any weakness.
Nvidia reported earnings on May 16 that were a small beat on both the top and bottom line. Initially shares rallied on the news, but later sold off when CFO Collette Kress stated that the company would no longer be providing full-year guidance, only quarterly. The reason she gave that was visibility remains low — which makes sense given the ongoing U.S/China issues.
Nvidia stock is certainly more attractive from a fundamental view given the combination of better earnings and a lower stock price. Current P/E now sits below 30 and also at a discount to the 5 year average of 34. It has also fallen sharply from the recent pre-earnings levels near 36. NVDA is comparatively cheap at current levels.
Trading NVDA Stock
Nvidia stock is looking much better from a technical perspective. NVDA reached deeply oversold readings on many metrics before improving over the past few days. 9 day RSI was well below 20 while MACD reached similar extremes. Bollinger Band Percent B went negative before recovering to positive territory. There is major downside support at the $130 level.
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The price action yesterday was also encouraging. Nvidia stock failed to make a new low and closed higher and also near the highs of the day. The ability for the bulls to take finally charge after the previous selling deluge is many times an indication of a reversal.
Investors should use any further weakness in the Nvidia stock price to purchase shares. The initial upside price target is the 20 day moving average at the $171 area. A signficant break below support at $130 would be a viable stop out price.
Option traders may elect to take a guardedly bullish position by selling an out of the money bull put spread. Selling the NVDA July $135 puts and buying the NVDA July $130 puts for a 75 cents net credit provides a 17.65% return on risk while also allowing for a 11% downside cushion to the current price of Nvidia stock.
Tim may hold some of the aforementioned securities in one or more of his newsletters. Anyone interested in finding out more about Tim and his option-based strategies can go to https://marketfy.com/item/options-and-volatility.
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