Three Stocks: Nvidia, Arm Holdings, and Tesla

Nvidia

Nvidia (NVDA) stock continues to defy gravity after the company’s earnings report last week.

Shares traded almost 7% higher into the close, breaking above $1,100 for the day as investors are still reacting to the earnings beat. Volume on the stock was once again heavy on the move.

There are two drivers in play on Nvidia stock right now.

First, a case of investors piling into the stock after Wall Street analyst’s have appears to have gone “all in” on the stock.

Last week’s earnings beat attracted 26 price target upgrades to the stock, the most that I can ever remember seeing on a single day. The average price target from analyst’s went from $1,021 to $1,171 last Thursday, a 14.6% increase. And to put things into perspective, that target price is now just 2.7% above Nvidia’s current price.

The second driver in place comes from the price itself.

Shares closed above the $1,000 mark for the first time on Friday. As simple as it sounds, that break into four-digit price territory causes a FOMO moment for long-term investors that have been waiting for an opportunity to “buy the dip.”

Having moved 20% higher in only three days, that “buy the dip” moment is likely to happen as the stock is now in a technically overbought situation - but don’t expect the “dip” to take shares back below $1,000.

We’re likely to see that price turn into support for the stock now that it has been broken with heavy trading volume. This is a course that the stock followed last quarter after its earnings, a slight pullback from the initial 29% rally opened the door for the stock to move another 25% higher over a two-week period.

nvda stock chart

Arm Holdings

Arm holdings (ARM) surged 9% today as the company broke above a key technical trendline.

Shares of ARM have spent the last 11 days battling with their 50-day moving average as the stock has been unable to post a close above this key trendline.

Today’s heavy volume trading not only cracked that trendline, but also took the stock back to prices above their latest selloff in mid-April. At that time, investors sold shares of ARM following a weaker-than-expected outlook from ASML (ASML), who reported results on that day.

Between now and then, ARM has posted their own earnings results and outlook that were better than Wall Street expectations, though the stock was still in a price lull. The less than eager response from investors was partially due to the market taking a wait and see stance on many semiconductor companies ahead of Nvidia’s earnings.

Nvidia tried to purchase Arm but called the transaction off in 2022 as antitrust regulators expressed concerns that it would cause an unfair advantage for Nvidia. They still owns a large portion of Arm and licenses Arm’s designs.

In addition to moving above its 50-day moving average, ARM shares also broke above their top Bollinger Band.

A break above a stock’s top Bollinger Band signals higher potential for a volatility rally. In this case, the rally is likely to target the $150, which would return the stock to near to ARM’s all-time high.

arm stock chart

Tesla

Tesla (TSLA) shares traded 1.4% lower today after a proxy advisory firm recommended that shareholders reject the proposal to reinstate Elon Musk’s $56 billion pay package.

The headline may have moved the stock lower, but the technicals are about to take over to drive prices lower.

Tesla shares have spent the last month trying to consolidate into a tradable bottom at $170. This after the company plunged to $140 per share ahead of its latest earnings call. Shares quickly rallied 40% to nearly $200 after management suggested new lower priced models could possibly ship by year-end to early 2025.

Despite the strong rally, we’ve seen investors back off the stock as Wall Street has adopted a wait and see outlook on the shares. This has grown a little stronger as Elon Musk’s pay package has now drawn more sceptics given the stock’s performance over the last two years.

Here’s the problem…

The recent consolidation has resulted in the stock being pushed into a volatility squeeze. These volatility squeeze situations often result in a sudden surge in price movement and volume, typically directed by the intermediate-term technical trends.

In this case, a move back below $170 will likely act as the “trigger” for that volatility surge to aggressively push prices lower.

Tesla shares saw a similar price situation on April 15 as the stock broke below $170. That decline led to $140 just ahead of the company’s earnings call on April 23.

tsla stock chart

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.

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