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Nvidia just formed a bearish technical pattern that is signaling a reversal ahead. The red-hot chipmaker dropped 3.5% on Thursday after temporarily unseating Microsoft as the most valuable public company in the U.S. Thursday’s decline marked a “bearish engulfing” pattern that often signals that the prior upward momentum is waning. The chart pattern occurs during a rally when a large down candle follows a series of up candles and engulfs them. A candle represents the difference between the opening and closing price. “A one-day reversal to create a bearish engulfing pattern is typically important for the near-term to suggest that a turning point might be near,” Mark Newton, head of technical strategy at Fundstrat, said in a note. “NVIDIA is getting closer towards suggesting some confluence in daily and weekly exhaustion.” Shares of Nvidia have climbed more than 160% this year amid the artificial intelligence boom. The chipmaker has become so prominent that it’s now a market bellwether that can sway the direction of the broader market. Enthusiasm around AI, and Nvidia specifically, has pushed the market higher in recent weeks even as many investors grew concerned that a lack of market breadth outside the technology behemoths could become worse. Others believe the Nvidia bearish engulfing pattern, while ominous, isn’t significant enough yet. The confirmation of a bearish engulfing pattern sometimes depends on the size of the candles. “The reversal of the shares was 11 cents away from clearly registering a bearish engulfing pattern. Even still, it is not a pretty pattern,” Mike O’Rourke, chief market strategist at JonesTrading, said in a note. “The momentum behind the remarkable run that commenced with the guidance it provided in May of last year may finally be running out of steam.”
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