Some people on Wall Street are wondering if the nearly two-year-long wild rise, driven by the artificial intelligence boom, is over since Nvidia Corp.’s stock has been in a holding pattern for a few months now.
Bulls shouldn’t worry just yet, and they might even have reason to be happy. Because that holding pattern looks a lot like a “pennant,” which many people who follow charts on Wall Street see as a sign that the previous rise will return.
It took three months for Nvidia’s stock price to stop falling, but it did fall 3% in afternoon trade. It was moving pretty much the same as it was in early June.
The stock of the chipmaker and AI play has dropped 11.2% since it hit a record high of $135.58 on June 18. At that point, it had gained 173.8% so far this year. On the other hand, the stock has gone up 21.7% since it hit a two-and-a-half-month low of $98.91 on August 7. It has also been following a rising trendline for a few months now.
You can see what a pennant continuation pattern looks like in the picture below:
BTIG technical expert Jonathan Krinsky said that the stock’s gains this week were “rejected” at the downtrend line. However, the way it has been trading lately looks like “the pause that refreshes.”
As long as the trending resistance and support lines continue to converge, the price could still be volatile. However, pennants usually end in the direction of the previous trend, which was up.
Right now, the support line goes to about $104.75, and on Monday, the resistance line would go to about $125.80.
There are different ways to figure out a “measured move” continuation, so there are different ideas about what happens after the rise starts up again.
Some people will find the high point by adding the pennant’s largest part to the point where it broke out. For Nvidia, that would mean adding the $46.83 rise from the low point on May 9 to the record high point to the point where the stock goes above the top of the pennant.
If the breakout happens on Monday, the goal for the measured move would be around $172.63, which is 43% above where the price is now.
Some people think that the pennant is in the middle of a rally, so they add the length of the “flagpole,” or the whole rally, to the breaking point.
At the moment, Nvidia’s flagpole is about $88 high. If it breaks out on Monday, the next goal would be about $213.80, which is 77% above where it is now.
A break of the support line could, of course, cause a full decline, which would put prices about 60% below where they are now.
History shows that the stock fell 56% during the downtrend that started in late 2018 after a three-year rally. It also fell 66% during the downtrend that started in late 2021 and ended in late 2022 after another three-year rally.
It’s only been two years since the last rise.
