NVDA Faces an Uphill Battle for Its Bear Rally
Updated
Primary Chart: NVDA's Downtrend Represented by Parallel Channel with Key Levels
SUMMARY:
On September 12, 2022, NVDA's downtrend was discussed, and new lows were predicted. NVDA's new lows materialized quickly in September 2022 as equity markets plummeted to new YTD lows. The September 12, 2022, post also queried whether the gap at $150 would be filled before new lows, but recognized that the 8-day EMA would have to be conquered first. Because the 8-day EMA was never reclaimed at the time, price followed the path of least resistance and reached new lows sooner than expected.
This occurred amid a backdrop of interest rates continuing to skyrocket since mid-August 2022, and US central bank policy remaining quite hawkish to control sticky inflation.
Like the Nasdaq 100 of which it is a constituent, NVDA has begun to rise in what should be considered an oversold bounce. On Tuesday, October 4, 2022, as equity indices rallied hard, NVDA popped +5.23%. The semiconductor group rallied about 4.28% (see
SMH on October 4, 2022).
After two days of massive gains so far, NVDA may need to cool off a bit before dip buyers and short-covering sellers continue to push the price higher. Because this is a bear market, anything can happen, and the bear market could resume at any time, which is why countertrend trading is considered high risk and low probability trading.
Initial targets for the bounce, which could serve as downtrend entry points for nimble traders with stops, could include the 21-EMA (unless price decisively closes above it), around $133.32 as of today, then $140.31-$141.98, a zone shown by a light blue rectangle on the Primary Chart above. This zone includes a partial gap fill area and major swing lows from early July 2022 (now resistance). Only if these initial levels can be cleared and maintained does it make sense to consider further targets even higher.
The next resistance area overhead lies at $147.45–149.58, a zone shown by another light blue rectangle on the Primary Chart above. Clearing $147.45 could be challenging given the supply zone evident there—this is where mid-July 2022 support was found at a major swing low, which now makes it a critical resistance area and supply zone. And this is also where a daily candle with a strikingly large shadow (representing supply and selling pressure) appears on September 21, 2022. A Fibonacci resistance level also coincides with this level, i.e., the .382 Fibonacci retracement at $147.45. This area also coincides with the orange VWAP anchored to early August 2022 peaks. This resistance does not appear likely to be exceeded in the near term.
In the event $147.45-$149.58 is cleared by a daily close, one may consider even higher targets, such as $156.10-164.75, which are key Fibonacci retracements of the most recent leg of the bear market's decline. If price can break everyone's expectations and exceed even $156-$164, then it still must contend with the channel resistance at the downtrend line shown on the Primary Chart. For October 2022, this channel resistance (which is dynamic as it slopes downward) lies in the 190s.
RSI also points to higher prices near term. This momentum indicator has broken above an intermediate-term downtrend resistance shown by a trendline on the RSI chart below. RSI could continue up to the typical oversold area for bear markets and downtrends, around 55-65.
Supplementary Chart: RSI on Daily Chart for NVDA
Countertrend trading is already challenging and lower probability than trend trading. But to make matters worse, any trades on this rally could be frustrated by volatility around CPI and NFP data being released in coming days. This could make price action in stocks and equity indices continue to whipsaw or chop as it has recently.
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Author's Comments:
(1) Thank you for reviewing this post and considering its charts and analysis. The author welcomes comments, discussion and debate in the comment section. Shared charts are especially helpful to support any opposing or alternative view.
(2) This technical-analysis view does not constitute a trade recommendation or trade setup. Instead, it attempts to offer technical commentary that describes and analyzes price levels, trends, price action, or the broader technical environment as of the publication date. Technical-analysis commentary does not equate to trade setups or recommendations. Within a given price environment, traders bear responsibility for their own trading strategy, risk tolerance, and time frame, and for any due diligence associated with such trades.
(3) This technical-analysis viewpoint could change at a moment's notice, e.g., when price violates a key level of invalidation for a particular view. Further, proper risk-management techniques are vital to trading success.
(4) To the extent countertrend price moves are discussed, consider that countertrend or mean-reversion trading, e.g., trading a rally in a bear market, remains higher risk and lower probability even for the most experienced traders and investors.
DISCLAIMER: This post contains commentary published solely for educational and informational purposes. This post's content (and any content available through links in this post) and its views do not constitute financial advice or an investment or trading recommendation, and they do not account for readers' personal financial circumstances, or their investing or trading objectives, time frame, and risk tolerance. Readers should perform their own due diligence, and consult a qualified / licensed financial adviser or other financial or investment professional before entering any trade, investment or other transaction.
SUMMARY:
- NVDA faces an uphill battle for its bear rally with a great deal of overhead resistance.
- One must presume at the outset that the rally is a bear rally given the bearish trend structure. Until that structure changes on higher time frames, such as daily and weekly time frames, the trend remains down.
- The bear rally should initially reach targets of $133.32, the 21-day EMA as of October 4, 2022, and $140.31–$141.98, a partial gap fill area and the top of the long shadow on the daily candle for September 21, 2022 and July 2022 support (now resistance).
- Only if the 21-day EMA and the September 1, 2022, anchored VWAP (purple line) from the gap on September 1, 2022, can be cleared does it make sense to consider the higher targets.
- If lower targets are cleared, the next higher targets would be $147.45, which represents a major gap fill area and a Fibonacci retracement level. This area also coincides with the orange VWAP anchored to early August 2022 peaks. This target does not appear likely to be exceeded in the near term. In the event $147.45 is cleared by a daily close, one may consider even higher targets, such as $156.10, which is the .50 retracement of the most recent leg of the bear market's decline, and $16
On September 12, 2022, NVDA's downtrend was discussed, and new lows were predicted. NVDA's new lows materialized quickly in September 2022 as equity markets plummeted to new YTD lows. The September 12, 2022, post also queried whether the gap at $150 would be filled before new lows, but recognized that the 8-day EMA would have to be conquered first. Because the 8-day EMA was never reclaimed at the time, price followed the path of least resistance and reached new lows sooner than expected.
This occurred amid a backdrop of interest rates continuing to skyrocket since mid-August 2022, and US central bank policy remaining quite hawkish to control sticky inflation.
Like the Nasdaq 100 of which it is a constituent, NVDA has begun to rise in what should be considered an oversold bounce. On Tuesday, October 4, 2022, as equity indices rallied hard, NVDA popped +5.23%. The semiconductor group rallied about 4.28% (see
SMH on October 4, 2022).After two days of massive gains so far, NVDA may need to cool off a bit before dip buyers and short-covering sellers continue to push the price higher. Because this is a bear market, anything can happen, and the bear market could resume at any time, which is why countertrend trading is considered high risk and low probability trading.
Initial targets for the bounce, which could serve as downtrend entry points for nimble traders with stops, could include the 21-EMA (unless price decisively closes above it), around $133.32 as of today, then $140.31-$141.98, a zone shown by a light blue rectangle on the Primary Chart above. This zone includes a partial gap fill area and major swing lows from early July 2022 (now resistance). Only if these initial levels can be cleared and maintained does it make sense to consider further targets even higher.
The next resistance area overhead lies at $147.45–149.58, a zone shown by another light blue rectangle on the Primary Chart above. Clearing $147.45 could be challenging given the supply zone evident there—this is where mid-July 2022 support was found at a major swing low, which now makes it a critical resistance area and supply zone. And this is also where a daily candle with a strikingly large shadow (representing supply and selling pressure) appears on September 21, 2022. A Fibonacci resistance level also coincides with this level, i.e., the .382 Fibonacci retracement at $147.45. This area also coincides with the orange VWAP anchored to early August 2022 peaks. This resistance does not appear likely to be exceeded in the near term.
In the event $147.45-$149.58 is cleared by a daily close, one may consider even higher targets, such as $156.10-164.75, which are key Fibonacci retracements of the most recent leg of the bear market's decline. If price can break everyone's expectations and exceed even $156-$164, then it still must contend with the channel resistance at the downtrend line shown on the Primary Chart. For October 2022, this channel resistance (which is dynamic as it slopes downward) lies in the 190s.
RSI also points to higher prices near term. This momentum indicator has broken above an intermediate-term downtrend resistance shown by a trendline on the RSI chart below. RSI could continue up to the typical oversold area for bear markets and downtrends, around 55-65.
Supplementary Chart: RSI on Daily Chart for NVDA
Countertrend trading is already challenging and lower probability than trend trading. But to make matters worse, any trades on this rally could be frustrated by volatility around CPI and NFP data being released in coming days. This could make price action in stocks and equity indices continue to whipsaw or chop as it has recently.
________________________________________
Author's Comments:
(1) Thank you for reviewing this post and considering its charts and analysis. The author welcomes comments, discussion and debate in the comment section. Shared charts are especially helpful to support any opposing or alternative view.
(2) This technical-analysis view does not constitute a trade recommendation or trade setup. Instead, it attempts to offer technical commentary that describes and analyzes price levels, trends, price action, or the broader technical environment as of the publication date. Technical-analysis commentary does not equate to trade setups or recommendations. Within a given price environment, traders bear responsibility for their own trading strategy, risk tolerance, and time frame, and for any due diligence associated with such trades.
(3) This technical-analysis viewpoint could change at a moment's notice, e.g., when price violates a key level of invalidation for a particular view. Further, proper risk-management techniques are vital to trading success.
(4) To the extent countertrend price moves are discussed, consider that countertrend or mean-reversion trading, e.g., trading a rally in a bear market, remains higher risk and lower probability even for the most experienced traders and investors.
DISCLAIMER: This post contains commentary published solely for educational and informational purposes. This post's content (and any content available through links in this post) and its views do not constitute financial advice or an investment or trading recommendation, and they do not account for readers' personal financial circumstances, or their investing or trading objectives, time frame, and risk tolerance. Readers should perform their own due diligence, and consult a qualified / licensed financial adviser or other financial or investment professional before entering any trade, investment or other transaction.
Note
Chop may be the name of the game as NVDA works higher in a corrective bounce.Note
It looks like NVDA is having a bit of a reaction / pause at the VWAP anchored to September 1, shown in the Primary Chart. This VWAP is anchored to the day of a major gap down. That it would be some resistance is not a surprise.Note
Another semiconductor has similar trend problems that could take a long time to resolve: 
Trade closed: target reached
This post was published October 4. It stated as follows:The bear rally should initially reach targets of $133.32, the 21-day EMA, . . . and $140.31–$141.98, a partial gap fill area and the top of the long shadow on the daily candle for September 21, 2022 and July 2022 support (now resistance).
Only if the 21-day EMA and the September 1, 2022, anchored VWAP (purple line) from the gap on September 1, 2022, can be cleared does it make sense to consider the higher targets.
If lower targets are cleared, the next higher targets would be $147.45, which represents a major gap fill area and a Fibonacci retracement level. This area also coincides with the orange VWAP anchored to early August 2022 peaks. This target does not appear likely to be exceeded in the near term. In the event $147.45 is cleared by a daily close, one may consider even higher targets, such as $156.10, which is the .50 retracement of the most recent leg of the bear market's decline:
BRIEF UPDATE: NVDA on Thursday, October 6, reached the initial targets in the first paragraphs of this post. It reached $133.32, and briefly hit and exceeded both the 21-day EMA and the short-term anchored VWAP (the one anchored to Sept. 1). But it quickly failed the same day back below these levels (as is expected in a bear rally), while also forming a gravestone doji candle. In theory, a gravestone doji is supposed to forecast a bearish reversal. But one expert trader who appears to have studied the statistic for this pattern says that the outcome (bearish reversal) is only 50%, meaning that the candle is not super useful. Here, however, the bearish doji did work as expected as to forecasting a move lower, which was significant! After the gravestone doji candle appeared on Thursday, October 6, price fell more than -8% on Friday, October 7.
A note about the bear rally targets: The first bear rally target of $133 and the 21-day EMA were both reached and exceeded. In fact, price rallied to $136.56, just 2.67% below the lower end of the next higher target range for this bear rally of $140.31–$141.98 (the gap fill area). To be clear, this was always viewed as a bear rally, and nothing more.
The original post also mentioned the following:
"Countertrend trading is already challenging and lower probability than trend trading. But to make matters worse, any trades on this rally could be frustrated by volatility around CPI and NFP data being released in coming days. This could make price action in stocks and equity indices continue to whipsaw or chop as it has recently."
This post has expressed unequivocally that any rally would be a "bear rally," and would remain "countertrend." This leaves no doubt that the primary trend remains a bear trend, a downtrend despite a countertrend retracement.
In short, initial targets of $133 and the 21-day EMA were reached on Thursday, October 4. And the next higher target range of $140.31 to $141.98 was nearly reached (price was 2.67% below). Given that NVDA quickly failed and moved back to test its lows, and that countertrend ideas remain lower probability, this idea will be closed.
However, the market could easily continue its 'corrective rally' within a downtrend next week. This could pull NVDA back up to the targets mentioned, but as a countertrend move after an -8% decline today, the probability remains too low to trade. Perhaps NVDA has more room to run on the upside, another gap to fill before October 19, 2022, options expiration date. We'll see. Near term price fluctuation is highly uncertain, but more continuation in the downtrend is not uncertain.
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