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Nvidia's Success Could Be Its Undoing

Chip making company is starting to see "crowd behavior" among analysts.
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We reviewed the charts and indicators of NVIDIA (NVDA) last week,  and recommended this strategy -- "In this Point and Figure chart of NVDA we can see an extended market, but also a $198 price target.... Slower volume, weaker momentum....all point to caution ahead. Long NVDA? I would suggest raising sell-stop protection to a close below $170." NVDA traded to a new all-time high this morning of $195.80.

Let's see if our strategy suggestion needs any updating.

In this updated daily bar chart of NVDA, below, we can see that prices are above the rising 50-day moving average line. Prices have stayed well above the rising 200-day line for the past twelve months. The daily On-Balance-Volume (OBV) line is higher than it was a year ago but it has suffered through two sideways periods. Recently the OBV line made a new high to confirm the price strength. The 12-day momentum study in the bottom panel shows a small bearish divergence with equal momentum highs in September and October compared to higher highs in price over the same time period. This is a small bearish divergence and while it might work in foreshadowing a downward correction it doesn't look that dangerous. A bearish divergence in May and July only resulted in sideways price action.

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In this weekly bar chart of NVDA, below, we can see that prices are above their rising 40-week moving average line. This longer-term indicator has done an excellent job since early 2016. The weekly OBV line has not made much upward progress the past three months. The weekly Moving Average Convergence Divergence (MACD) oscillator is turning upwards to a fresh outright go long signal.

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In this Point and Figure chart of NVDA, below, we can see that NVSDA is extended on the upside with a $198.64 price target.

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Bottom line -- sell side analysts have been raising their price targets on NVDA to the point that I think this is "crowd behavior" and could mean that the stock has become "over owned." Aggressive traders with a high average cost could consider a sell stop below $180 now and investors should continue with stops below $170.

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