Nvidia (NVDA) has established itself as the third largest constituent of the S&P 500, exerting a significant influence on investor sentiment. Central to the artificial intelligence (AI) “trade” that has driven market bullishness over the past two years, the company is now experiencing a downturn as the third quarter draws to a close. Despite a strong start to the year, Nvidia’s stock performance has recently declined, prompting investors to question whether this signals the end of the AI trade.
From a long-term technical perspective, there are indications that the consolidation phase, which began in July, might persist. In July, the DeMARK Indicators recorded a counter-trend signal, and subsequent technical signals such as the monthly stochastic oscillator falling below 80% and a downtick in the monthly MACD histogram suggest the stock could remain range-bound for several months.
The consolidation phase for NVDA has formed a triangle pattern, visible on the daily bar chart, characterized by converging boundaries that capture lower highs and higher lows. This pattern often signifies periods of indecisiveness in the stock market. Investors might not be convinced that the AI trade merits another substantial increase in NVDA’s value, following the stock’s approximately 150% rise in the first half of the year. As of the end of September, NVDA’s stock is down about 3% for the quarter.
In the near term, the boundaries of the triangle pattern on NVDA’s chart should be closely monitored, with resistance at the upper boundary near $126 and support at the lower boundary near $107. A recent downturn in the daily stochastic oscillator supports the potential for a pullback from resistance, maintaining the triangle formation. Should the support level be breached, there could be increased downside risk, with secondary support identified near $97, warranting risk management below $107.
Given NVDA’s significant role in the S&P 500, it remains an important stock to monitor, regardless of individual investment positions. The market sentiment for both NVDA and the S&P 500 could improve if the stock manages to break out of the triangle formation, despite current indications. Observing breakouts and breakdowns is crucial, as a triangle breakout could lead to a retest of NVDA’s all-time high near $141, potentially prolonging the AI trade.
This analysis, produced by Katie Stockton in collaboration with Will Tamplin of Fairlead Strategies, is intended solely for informational purposes and does not represent financial advice or a recommendation to buy or sell any securities. The content reflects the author’s views and is subject to change. Fairlead Strategies assumes no responsibility for any actions taken based on this information.
