Nvdia Trying To Reverse At Resistance

06/22/05 07:33:49 AM

by Arthur Hill

Nvdia has been a stellar performer since August, but a potential double top and bearish engulfing pattern could mark the end of the run.

Security: NVDA
Position: Sell

Nvdia advanced from 10 to 30 (August to March) and then declined to around 21. The nine-point decline marked a retracement that was around 50% of the prior advance. The stock bottomed in late April and raced back to its March high over the last seven to eight weeks. With relatively equal highs just below 30, the prospects of a double top are emerging.

A bearish candlestick reversal and key volume indicator reinforce the notion of a double top. First, the index formed a bearish engulfing on high volume last week (red oval). NVDA managed to consolidate the last four days, but a move below the June low would confirm the bearish engulfing. Second, the Williams accumulation/ distribution line formed a low high in June. The stock also formed a lower high, but the June high came pretty close to the March high. In contrast, the indicator called for a significantly lower high, so I would call this a negative divergence (Figure 1).

Figure 1: NVDA negative divergence

Graphic provided by: MetaStock.

Graphic provided by: Reuters Data.

A double top would not be confirmed unless the stock breaks support at 20. Based on traditional technical analysis measurement, a move below 20 would project further weakness to around 10, which is where the advance began in August (30 - 20 = 10, 20 - 10 = 10). For now, I would watch the June low and turn short-term bearish on a move below 25.75.

Arthur Hill

Arthur Hill is currently editor of TDTrader.com, a website specializing in trading strategies, sector/industry specific breadth stats and overall technical analysis. He passed the Society of Technical Analysts (STA London) diploma exam with distinction is a Certified Financial Technician (CFTe). Prior to TD Trader, he was the Chief Technical Analyst for Stockcharts.com and the main contributor to the ChartSchool.

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DOUBLE TOPS

Nvdia Trying To Reverse At Resistance

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