Stock Trading Predictions & Technical Analysis: NVDA - Hits a new 52 week high, but possibly nearing its top

Thursday, December 17, 2009

NVDA - Hits a new 52 week high, but possibly nearing its top

NVDA - HOLD

Despite giving us a few BUY SIGNALS today on a technical point view, I decided to issue just a HOLD for NVDA. NVDA has hit a new 52 week high and broke slightly above its resistance level around $16.50, while the Stochastic also gave us a BUY SIGNAL. However, despite these bullish signals the OBV (On Balance Volume) has a negative divergence which usually is a sign that the trend up is near its end, as you may see the stock reverse back down soon. When a stock starts trading higher and higher and hits new 52 week highs, you always want to see the volume experience the same trend up, which is not the case with NVDA. To have a stock continue higher you need volume to follow along, and as you can observe the OBV is lower than when it had hit its high of around $16.50 in mid-September.

What I expect to happen in the upcoming sessions is to see NVDA trade a little higher for a few days before pulling back down and most like go back to at least $15.00 or towards its 50 day MA. The reason I say this is that the first impression I had when I looked at this chart is that it reminded of MGM's trend back in May when it moved very quickly higher having similar break outs where it then broke back down sharply after hitting a top. Here is MGM's chart of this past May

As you can see, shortly after breaking up over its 50 day MA, MGM had a big breakout and traded for just a few sessions around $9, before having yet another big breakout and hitting a top around $13.00, before sharply moving back down. This pattern is almost identical NVDA. MGM also had a negative divergence prior to its big fall back down. This doesn't mean this is what will occur with NVDA, but the truth is that those patterns have tendency to repeat themselves and after seeing how MGM reacted, it is possible NVDA may face the same fate but perhaps not as abruptly as NVDA has a much lower Beta than MGM. NVDA could still continue much higher, but I doubt it, as it would need to have much stronger volume than it recently had. Despite giving us a few BUY SIGNALS, the OBV has given us a warning sign that the top may be near and therefore I can only issue a HOLD. If you already hold a position with NVDA and have decent gains, I would suggest setting a VTSO or adjusting a Stop Loss order up if it continues higher.

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TECHNICAL INDICATORS

BUY SIGNAL: Indicates the possibility of the start of a new up trend or the continuation of the current up trend. This signal may be often given in the early stages of a potential new up trend that was preceded by a down or sideways trend. Such signals do not always succeed and may fail at time.

BUY: Indicates that the current up trend is already in motion and a BUY SIGNAL was already given earlier. A BUY does not necessarily indicate that the stock will continue higher from here, but simply that the stock is trending up. The further into the trend you decide to take a long position, the more risk you have of seeing it reverse back down sooner rather than later.

STRONG BUY SIGNAL: Indicates a stronger, more significant and reliable signal than a BUY SIGNAL which usually has less chance of failing. Such signals do not always succeed and may fail at time.

STRONG BUY: Indicates that the current up trend is already in motion and that STRONG BUY SIGNAL was already given.

SELL SIGNAL: Indicates the possibility of the start of a new down trend or the continuation of the current down trend. This signal may be often given in the early stages of a potential new down trend that was preceded by an up or sideways trend. Such signals do not always succeed and may fail at time.

SELL: Indicates that the current down trend is already in motion and a SELL SIGNAL was already given earlier. A SELL does not necessarily indicate that the stock will continue lower from here, but simply that the stock is trending down. The further into the trend you decide to sell a position, the more risk you have of seeing it reverse back up.

STRONG SELL SIGNAL: Indicates a stronger, more significant and reliable signal than a SELL SIGNAL which usually has less chance of failing. Such signals do not always succeed and may fail at time.

STRONG SELL: Indicates that the current down trend is already in motion and that STRONG SELL SIGNAL was already given.

HOLD: Indicates that traders who already hold this stock, should hold on as long as the trend persists. This signal is usually given during an up trend for which it would be considered too risky to take a long position at this point.

STRONG HOLD: Indicates that the current trend has been in motion for a while and rarely deviated away from the trend. Although the stock may continue higher, there may not be enough potential up side to trigger a BUY SIGNAL. This type of indicator usually means that the stock has very strong support levels which may have been tested but not broken.

WAIT: Usually given during a sideways trend for which we are waiting for a move that would trigger a BUY SIGNAL or SELL SIGNAL. This could also indicate uncertainty and the risk that would be taken if you were to take a long position at the current level. Taking a long position after giving a WAIT indicator is considered a gamble.