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NVIDIA Stock Risks Falling Below Key Support

NVIDIA Stock Risks Falling Below Key Support

NVIDIA Corporation (NVDA​) may have reported better-than-expected second quarter financial results on Thursday after hours, but shares tumbled more than 7% in post-market trading. Over the past year, the stock has surged more than 180%, making it one of the top performing stocks in the benchmark S&P 500 Index. The lofty valuation meant that investors had high expectations for the stock moving into the third quarter of the year.

Second quarter revenue increased 55.9% to $2.23 billion – beating consensus estimates by $270 million – while net income of $1.01 per share beat consensus estimates by 31 cents per share. Third quarter guidance of $2.35 billion in revenue also surpassed consensus estimates calling for just $2.13 billion. However, lower-than-expected data center and automotive revenue overshadowed the strong second quarter beat and positive guidance. (See also: Snap, NVIDIA Fall After Hours Following Q2 Earnings.)

From a technical standpoint, the stock broke down from an ascending wedge pattern earlier this week and is poised to break down further on Friday. Traders will be closely watching key support levels at the pivot point at $157.01 and 50-day moving average at $157.15 during Friday's session. The relative strength index (RSI) is likely to move to oversold levels, while the moving average convergence divergence (MACD) could turn sharply bearish.

Traders will be closely watching the 50-day moving average and pivot point on Friday for a potential breakdown to S1 support at $144.08 or S2 support at $125.66. While the disappointment in data center and automotive revenue growth has taken a toll, the overall solid performance and guidance could protect the rally that has been in place since mid-year. Traders should maintain a short-term bearish and medium-term bullish outlook on the stock given its recent gains. (For more, see: NVIDIA Shares Fall on Data Center Revenue, but Chips Ride Cryptocurrency Boom.)

Chart courtesy of The author holds no position in the stock(s) mentioned except through passively managed index funds.