It’s time to consider downside targets for A.I.-darling Nvidia. The first half of 2024 was all about stocks like Nvidia Corp. (NVDA) riding the A.I. frenzy to extremely high valuations. And while that theme meant huge gains for semiconductors and other growth stocks, the charts are beginning to suggest that the dominance of mega cap growth may not be the story in the coming months. On the short-term chart of NVDA, we can see a series of bearish engulfing patterns in mid-June and again in mid-July. This two-day candle pattern, with an up day followed by a down day that “engulfs” the price action of day one, represents a short-term reversal in sentiment. So as Nvidia is testing $140, this pattern showed that traders were selling that strength. And when the price returned to that price range earlier this month, we saw the same pattern of short-term distribution. With the stock already down about 15% from those recent all-time highs, how can we measure the likelihood of a further retracement of the long-term uptrend? That peak from earlier in July around $135 is a confirmed lower high, showing that investors are finally unable to push the price past its previous extreme. This suggests a potential stall in the long-term uptrend. But as long as NVDA makes a higher low on the subsequent pullback, the uptrend could still be considered in place. With Nvidia currently sitting around $120, this represents a test of the most recent swing low in mid-June. This support level also lines up with a 38.2% Fibonacci retracement of the April to June rally phase, and also lines up with the 50-day moving average. What if it breaks support? So a confirmed break below $120 would mean a new swing low, a failure to hold the first Fibonacci support level, and the first move below the 50-day moving average since the April low. If NVDA would push below $120, I’d consider the next downside objective to be around $100. This level would coincide with the 61.8% retracement level, as well as the 200-day moving average. A drop to $100 would mean almost a 30% haircut off the June peak for NVDA, and would most likely have a fairly negative impact on the S & P 500 and Nasdaq 100 given its weight in those indexes. If Nvidia is able to establish a lower around current levels, then finally propel above the June and July highs, then there could be plenty of further upside for this mega cap semiconductor stock. But the charts are suggesting that a more cautious approach into August may be the more likely scenario. -David Keller, CMT marketmisbehavior.com DISCLOSURES: (None) All opinions expressed by the CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, NBC UNIVERSAL, their parent company or affiliates, and may have been previously disseminated by them on television, radio, internet or another medium. THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL’S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.
