Stocks driving the artificial intelligence (AI) movement are among the biggest winners in 2024.
And no stock leveraged AI’s buildout more than chipmaker Nvidia (NVDA).
At one point, the stock had soared 182% this year.
Just last week, the company added a record $329 billion in market capitalization… in a single day. That took Nvidia’s total valuation to $2.9 trillion.
But recently, the stock is showing signs of exhaustion.
Since peaking on June 18, NVDA shares have dropped 23.5%… putting it in bear market territory.
So today, let’s take a closer look at NVDA…
Can the AI leader get back on track? Or is there more downside in store?
Warning of a Top
Every bull market has its poster child. This one’s star is NVDA.
But during a recent attempt at new record highs, a major warning signal emerged in Nvidia’s stock price.
Check out the chart of NVDA below:
After peaking at $135 at “1,” NVDA pulled back a little. Then the stock ran up to the $135 level again at “2.”
That created a “double top” in the stock price.
A double top is a very bearish technical signal.
To spot one, look for a stock that reaches a high price twice with a dip in between. You can confirm a double top if the stock then falls below the low in between the two high points.
At the same time, the Relative Strength Index (RSI) was flashing a major warning signal. The RSI measures price momentum.
As NVDA tested the $135 level the second time, the RSI made a much lower high at “B” compared to “A.”
That signaled price momentum was fading quickly.
From there, NVDA dropped below the 50-day moving average (MA, blue line). Falling below the 50-day MA is a breach of an important support level.
So, here’s what to watch next for NVDA’s share price…
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Failing a Key Test
As Nvidia’s stock crashed through the 50-day MA, several signs hinted that the stock had fallen too far, too quickly. That suggested it could bounce.
Let’s look at the chart again.
The RSI fell near 30 at “C,” which showed that NVDA was extended to the downside. So, it could see a mean-reverting move to the upside.
That’s exactly what happened at the start of last week… but then another bearish pattern developed.
When a stock loses a support level, it often returns to “test” that level.
Support could be a price level the market has tested many times… or a key moving average like the 50-day.
A failed test occurs when the stock can’t recover that key level quickly, causing the downtrend to resume.
Look at the NVDA chart, and you’ll see this scenario playing out.
NVDA tried to recover and test the 50-day MA at “3”… but it couldn’t quite make it to that level again.
So that failed test is sending NVDA’s share price back toward its recent lows.
If these bearish signs hold, then traders can expect more downside ahead for NVDA…
Happy Trading,
Larry Benedict
Editor, Trading With Larry Benedict