Nvidia Corporation (NASDAQ:NVDA) has grown to become a leader in manufacturing graphics processing units (GPU) for computer and gaming devices as well as Artificial Intelligence (AI). In the recent 2 years, the American company benefited the most from the growth of cryptocurrency and artificial intelligence markets. However, back in October 2018, the stock made a major peak at $292 and started correcting to the downside losing more than 50% of its value in 2 months.
Nvidia stock wasn’t the only one being hit in recent decline as it’s direct competitor, Advanced Micro Devices (NASDAQ:AMD), suffered a 45% decline in October among other Technology and Semiconductor stocks around the world. Market sentiment started to switch as many investors considered the move to be just the first leg of a bear market but is that really the case? It could be or it the current decline could end all the correction and start another major rally into new all-time highs. We do understand that long-term investors take positions based on fundamentals analysis such as the company’s competitive environment, corporate strategy, management, products, earnings outlook, valuation and / or balance sheet but technical analysis can highlight high probability inflection areas in the market which can act as a great entry points regardless of whether you are a trader looking to hold the stock for a few weeks to a few months or an investor looking for to hold the stock from a few months to a few years. I will present the technical picture based in Elliott Wave and highlight the next inflection area in the stock.
Based on the Elliott Wave Theory, NVDA has been in a bullish trend since IPO low in 1999 and the stock advanced in an impulsive 5 waves move. The multi-year rally finally ended last month representing the Grand Super Cycle wave ((I)) which triggered the current decline taking place in wave ((II)). According to Elliott Wave Theory, when a 5 wave impulse ends, there will be a correction caused by buyers taking profits.
Corrections can take many different forms and in this case correction appears to be taking the form of a double three structure which has a measured move target at $105.54. It is the 100% Fibonacci extension of the decline from $292 high to $176 low projected lower from $222 peak. So, we can see a final leg lower into the measured move target area before Christmas followed by a significant EOY rally. If we do get the final leg lower and the subsequent rally turns out to be the start of a move to new all time high, then it would be a great opportunity to be able to catch such type of a move. Alternatively, it could produce a bounce toward 50 – 61.8 Fibonacci retracement area of the decline from $222 peak.
However at this stage, Nvidia stock is reacting higher from the 61.8 Fibonacci extension area $150 – $133 and there is high chance of the correction already ended at 11/20/2018 low. The idea is supported by the fact that Semiconductor ETF SMH and Advanced Micro Device AMD both reached their respective 100% extension ( Buying Area ) so consequently the sector is ready to resume the rally higher or bounce in larger 3 waves at least.
Nvidia NVDA Daily Chart 12.02.2018
