After posting its second consecutive bumper quarterly earnings, NVIDIA was primed for the continuation of its epic bull run. Instead, the stock has struggled to make headway in its secular uptrend, courtesy of a key technical inflection point.
NVIDIA reported $13.51 billion in quarterly revenue last week, constituting 88 percent sequential and 101 percent annual growth. The company's data center segment accounted for $10.3 billion in sales. The real shocker, however, was NVIDIA's blowout guidance, with the company now expecting $16 billion (plus or minus 2 percent) in sales for Q3 2024. For reference, consensus expectations for the quarter's revenue were pegged at just $12.61 billion just before the latest earnings release.
NVIDIA's blowout earnings and guidance were sufficient to unleash another round of stock price upgrades, with Rosenblatt's Hans Mosesmann raising the target on NVIDIA shares from $800 to a whopping $1,100, citing the likelihood of the $1 trillion global installed data center base to shift to accelerated computing in the next few years to cater to generative AI models, creating a phenomenal upside potential for NVIDIA in the process.
Yet, despite universal plaudits, NVIDIA shares are struggling to make a genuine headway in their secular uptrend. Consider the fact that the stock is down 5 percent over the past 5 trading days.
$NVDA Well well what do we have here...
One of the greatest MOAT's I have seen (Mother of All Trendlines).
Today formed a nasty reversal candle and I think we should get a decent HEALTHY further pullback to fill that gap around $432.99 sooner rather than later. That's only an… pic.twitter.com/jmPt9Gp2iM
— Heisenberg (@Mr_Derivatives) August 24, 2023
The tweet above details one of the likely culprits behind this confounding lack of upward momentum in NVIDIA shares: a powerful resistance trendline on the weekly chart. Each time the stock has managed to touch this trendline, substantial losses have ensued, with the entanglement in 2022 resulting in a whopping 69 percent loss.
The above chart gives an updated view of this setup (Trading View often skimps the representation of price gaps).
Given the powerful headwind that this trendline habitually unleashes, it remains quite likely that NVIDIA shares would seek to fill the price gap at around the $432 price level on the weekly chart. After all, stocks usually fill such price gaps around 80 percent of the time.
Some people often scoff at technical analysis. However, the fact remains that technicals often dictate the order flow, usually at key inflection points. Consequently, unless NVIDIA is able to breach the setup described above decisively, the path of least resistance will remain to the downside for the next few trading days.
Do you think NVIDIA is in for a rough patch? Let us know your thoughts in the comments section below.
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