NVIDIA (NVDA) Trading Lower Despite Blowout Quarter

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NVIDIA (NVDA) Trading Lower Despite Blowout Quarter

NVIDIA Corporation (NVDA) stock is down nearly 1% before of Thursday’s opening bell after the firm outperformed top- and bottom-line second-quarter 2020 expectations by wide margins and boosted third-quarter sales projections. The graphics chip maker posted a profit of $2.18 per share, much above the average forecast of $1.68, while sales increased by 50% year over year to $3.87 billion, again exceeding expectations. The sell-the-news response caught too aggressive traders on the wrong side of the tape, but the reaction makes sense given the present stock price, which is priced for near-perfection.

Key Takeaways

  • Earlier this week, NVIDIA stock reversed at $500, forming a key resistance level.
  • The sell-the-news response suggests that the stock was already priced for perfection before the publication.
  • Short-term weakness might lead to support between $460 and $470.

Data center revenue increased 167% year on year during the second quarter to $1.75 billion. This segment is diversifying NVIDIA’s revenue while reducing reliance on a large retail client base. Mellanox is also paying off, with the multinational producer of computer networking solutions increasing earnings by $0.14 per share in the first half quarter after the purchase concluded on April 27.

A robust product cycle also contributed to the outsized results, and anticipation for the new gaming chip, which will be released at the end of the month, is high. Microsoft Corporation’s (MSFT) brand-new Flight Simulator 2020 should drive sales of the new CPU, particularly after receiving positive industry feedback. A second pandemic wave might be the cherry on top later this year, forcing video gamers to remain at home once again to prevent infection.

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In Thursday’s pre-market, Cowen boosted its NVIDIA price target from $475 to $540, citing “another substantial beat/raise as Ampere DC and Mellanox fueled Q2 2020 performance, with better than 25% quarter-over-quarter gaming growth projected in Q3 2020.” He did, however, warn that “the bar was set high, and core DC-GPU growth may not have crossed certain obstacles.”

A news trader is a trader or investor who bases his or her judgments on news bulletins. Breaking news, economic reports, and other reported occurrences may have a short-term impact on stock, bond, and other security prices.

NVIDIA Short-Term Chart (2018 – 2020)

TradingView.com

A strong upswing peaked at $292.76 in October 2018, paving the way for a precipitous drop that lost more than 57% in less than three months before bottoming out in the mid-$120s. A relief rally that began in April 2019 halted in the lower part of the trading range, resulting in a successful test of the June low. The ensuing upswing completed a double bottom reversal in October when it rose beyond the previous high, eventually returning to the 2018 top in February 2020.

An initial breakthrough gained 23 points in three sessions before collapsing in a selloff that strengthened resistance at $300. Committed buyers initially appeared at $180 in March, resulting in a V-shaped rebound wave that reached a first-quarter high in May. The stock suddenly skyrocketed, gaining more than 180 points to this week’s all-time high of $499.84. It has dropped around 19 points into this morning’s early print, establishing $500 as a significant resistance level.

In June, price action relaxed into a rising channel, with the rise contained inside those parameters through August. It reversed at channel resistance before the announcement and may potentially fall to channel support at the 2.00 Fibonacci extension of the 2018 selloff. In extraordinarily strong uptrends, that harmonic level is a high-odds turning point, so a breakdown is likely to signify an interim correction that shakes out a substantial supply of weak-handed owners.

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A price channel occurs on a chart when the price of a security is confined by two parallel lines. The channel may be classified as horizontal, rising, or descending depending on the trend.

The Bottom Line

Despite blockbuster second-quarter results, NVIDIA stock reversed at $500 earlier this week and has compounded to losses. This decline might gain traction in the next sessions, descending to support between $460 and $470.

Disclosure: At the time of publishing, the author had no investments in the aforementioned securities.

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