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NVIDIA: Is Another Breakout On Tap?

Published 08/15/2021, 02:10 AM
Updated 07/09/2023, 06:31 AM

The current market cap is 503.1B. Companies in the semiconductor industry average a PE of 70.54x, while NVDA is 94.1x. However price is the ultimate arbiter. For now, the market sees a higher valuation for Nvidia (NASDAQ:NVDA) hence the 50% advance in the last few weeks since mid-May.

In the short term, price may have gotten ahead of itself before earnings, with price advancing more than +50% in the last few weeks since mid-May. Taking the valuation metrics off the table for a moment and just looking at price shows a parabolic rise this summer, see the chart below. 
NVDA Price
NVDA price has gone parabolic this summer and a "potential" ascending triangle annotated in green above suggests that a breakout above $210 would negate the unconfirmed double top scenario. However, looking at what could possible go wrong with this trade is a potential (unconfirmed) Double Top could be unfolding with a neckline near the 180 level.

The Double Top is only a theory at this point as the price has yet to close below the "neckline" price and must close below the neckline to "confirm" this pattern according to basic principles of technical analysis. The measured move, if confirmed, would suggest price could return to the 200 day moving average (yellow line), not entirely outside of the realm of possibility.

NVDA is approaching the most bullish period historically over the last few years:

Price History
Price is consolidating after the recent, impressive advance in a very short amount of time, albeit on diminishing volume, however low volume during this time of year should be expected.

Conversely, an ascending triangle could be setting up and would be a confirmed pattern should price close above $210 or +2.9% higher. Should that scenario unfold, that would increase the likelihood of a Fibonacci extension confluence near 228 or +12.9% higher in the near term.

Options alerts that came across the tape on Friday show a puts sweep that came in above the ask for $407k in premium for the Sept. 21 puts with a 200 strike at 9.05 ea x 450 contracts amidst numerous call options being closed out towards the end of day Friday on short dated call options expiring on OPEX, which could suggest that investors could be locking gains and preparing for an unknown reaction to earnings and a potential pull back ahead of the FOMC meeting minutes release on Aug. 18.

Any pullback to the 200 MA would increase the probability of CTAs to aggressively re-accumulate NVDA should that widely followed moving average get re-tested in the coming weeks ahead.

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