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Nvidia Stock Finds Support, But Can It Overcome Sell Signal?

Nvidia (NVDA) rose more than 3% on Wednesday afternoon as it continues to rise from support at the 10-week moving average. That’s bullish action, and the reason why Nvidia stock is today’s IBD 50 Stocks To Watch selection.

Shares peaked at 230.43 on Aug. 30. September saw the stock give back a lot of ground, albeit with almost no serious downside volume.

Nvidia stock stopped its decline right at the 50-day moving average, which more or less moves in concert with the 10-week line. Bargain hunters started buying the dip right away. Shares have erased almost all of Monday’s 3.6% sell-off, which was clearly the most bearish day of the September swoon.

Volume Wednesday was below average, which is one reason to remain cautious about buying the stock right now. Also, remember that the stock market is under pressure, which raises risk for any stock purchase.

The relative strength line is near new highs, a good sign for the rebound. The buy zone begins at about 212 and extends to 233.20.

Nvidia Stock Made Sell Signal

While support at the key moving average is normally good, the stock is not a straightforward analysis. That’s because the descent to the 50-day line wiped out an 11% gain from the breakout past a 207.43 buy point, according to MarketSmith pattern recognition.

That’s a round-trip sell signal, and it was the reason IBD Leaderboard cut Nvidia’s position size within the model stock portfolio.

Exceptional market leaders can overcome a sell signal, and Nvidia stock does have excellent qualities.

The company is the pioneer in graphics chips, essential for today’s realistic video game visuals. Its groundbreaking technology expanded into artificial intelligence, data centers, self-driving cars and other areas.

Nvidia agreed to acquire ARM Holdings, but the $60 billion deal faces objections from European regulators.

Earnings growth blossomed after the coronavirus bear market. EPS growth scaled from 62% year over year to 66%, 104% and 89% the past few quarters. Sales rose 50%, 57%, 61%, 84% and 68% the latest five periods.

Chip Industry A Market Leader

Its chip design industry group is in the top five of 197 groups, up from No. 68 six weeks ago.

Analysts expect Nvidia to increases earnings 52% to $1.10 a share for the October-ending quarter. That would mark a moderation in growth, from gain of 103% and 91% the previous two quarters.

Sales are estimated to climb 44% in the current fiscal third quarter to $6.82 billion, according to FactSet.

For the full fiscal year ending in January 2022, the consensus estimate is $4.14 EPS, up 66%, on a 55% surge in revenue to $25.78 billion.

The chip industry is largely cyclical, and analysts are divided on the outlook for Nvidia stock and its peers. Some believe a downturn is approaching, while others think the industry cycle is in the middle innings. Chip shortages are hurting a variety of industries.

Juan Carlos Arancibia is the Markets Editor of IBD and oversees our market coverage. Follow him at @IBD_jarancibia

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