How to Trade Nvidia in This Rough and Tumble Market
AI chipmaker Nvidia has been rocked by volatility. How should investors play the stock?
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Nvidia NVDA has been one of the most exciting and best-performing stocks over the past two years. The Santa Clara-based chip maker dropped sharply with the rest of the market on Monday morning, but by midday, Nvidia staged a comeback.
Nvidia has lost 20% of its value over the past month, yet it has doubled since the start of the year. What’s next for this volatile market darling?
Last week, reports circulated that former House Speaker Nancy Pelosi recently added 10,000 shares to her Nvidia long position. That’s normally a bullish sign, but investors should also know that Ms. Pelosi once lost over $340,000 on a 2022 Nvidia trade. Whatever your political leanings, give Ms. Pelosi credit for jumping back into a trade that had previously lost money, and turning it into a winner.
On the bearish side, reports have been circulating about a production delay for Nvidia’s forthcoming Blackwell line of AI chips. The powerful new chips, which are anticipated to be considerably more powerful than the current Hopper chips, were expected to debut in the second half of this year. At this time, Nvidia hasn’t confirmed that the Blackwell chips will be delayed.
There are also reports of a potential Department of Justice inquiry. The DoJ has questioned Nvidia rival Advanced Micro Devices AMD and other competitors about Nvidia’s business practices.
Those last two items, along with news that Warren Buffett’s Berkshire Hathaway BRK.A BRK.B had sold approximately half his position in Apple AAPL, had market participants in sell mode, causing Nvidia to gap lower to $92 at Monday’s opening bell. Nvidia then rallied to close the gap (point A).
Nvidia reached a series of all-time highs, then fell after forming a bearish double top pattern (shaded yellow). The support line for this pattern was $117.85 (solid green line).
Now that the line has been broken, that area is acting as resistance (red arrow).
The stock’s 50-day moving average (blue) is also an obstacle. A rally to that area on Thursday led to a smackdown, from which Nvidia is still recovering. The stock’s 200-day moving average (red) should act as strong support, as Nvidia hasn’t traded below that key indicator in over a year.
If you’re long Nvidia, now might be a good time to reduce your position size. This is especially true if the stock approaches the stock’s bearish trendline (red dotted line), currently just above $115.
Another tact could be to purchase protective puts if the stock nears $115. Think of puts as an insurance policy on a long position. Those puts are expensive now due to high volatility, but that could change if market conditions ease.
At the time of publication, Ponsi was long AAPL.
