It’s the one stock that EVERYONE is watching, it’s the embodiment of “AI,” it’s Nvidia (NVDA)…
And it’s getting ready to bring the whole market down.
Let’s be clear… Nvidia isn’t about to fall 30-50%, but its stock price is ready for a well-earned break. And that’s bad news for the market.
You may remember the days of Worldcom. Or maybe Yahoo. These were two stocks that define a long-term bull market, just like Nvidia does today.
In the case of Worldcom, if it went up, the market went up. It was almost that simple. The stock defined the rally.
Yahoo in the dot-com era was the same. The market could start the day down one percent, but if Yahoo found space to rally, so did the market.
Now it’s Nvidia’s turn. All eyes are on what Nvidia does, every day. And today’s trading is likely to change the tone of the entire market.
It all comes down to the chart.
Since that October bottom we’ve spoken about, Nvidia stock has rallied 122%. That’s more than four times the market’s returns.
That puts the stock in prime position for a profit-taking selloff.
That said, the stock is sitting on the perfect short-term trigger for a selloff.
Yesterday’s close took NVDA shares below their 20-day moving average. I refer to this trendline as the “Trader’s Trendline” for a very good reason.
“Traders” are seen as a faster-moving segment of the market. They buy stocks and then sell them to lock-in profits at the first sign of weakness. After years of study, I’ve been able to determine that the 20-day moving average is the trendline most traders watch for that sign of weakness.
In Nvidia’s case, the stock hasn’t traded below its Trader’s Trendline since – you guessed it – October 2023.
Today’s “second close” below this trendline WILL increase selling pressure on the stock as traders move to take their profits.
Since this is the most-watched stock in the market, it stands to reason that the “crowd” will start to follow trader’s lead, adding to the selling pressure on it.
I mentioned the $900 level for the stock. Shares have been trading in a tight range for the last month with $900 as the mean price of the range.
This puts a heavy psychological or sentiment measure on the price. Think of it as the Dow crossing 10,000 back in the day. The index got slammed just after crossing that price milestone. The same is going to be true with Nvidia crossing back below $900.
What Do You Do Now?
First, if Nvidia stays below its $900 and 20-day moving average today, then you know that the market’s correction has been triggered.
It’s the Worldcom or Yahoo effect.
These widely watched stocks pump market higher and run them lower.
More importantly - if you haven’t had the opportunity to buy Nvidia yet, your time is coming.
I expect the stock to drop to $800 and then potentially find support at $775. That’s where the first round of fear of missing out (FOMO) buyers will start grabbing shares.
A break below that will drive shares to $700, which is the point where I will add another round of the stock to my own portfolio.
I’ll share a few of the other stocks that are on my “Buy the Dip” list on Friday.
About the Author
Chris Johnson (“CJ”), a seasoned equity and options analyst with nearly 30 years of experience, is celebrated for his quantitative expertise in quantifying investors’ sentiment to navigate Wall Street with a deeply rooted technical and contrarian trading style.