NVDA stock has continued to fall in spite of new positive triggers for NVIDIA. Why? Technical indicators like MACD may offer a clue.
Shares of Santa Clara, California-based NVIDIA Corporation (NASDAQ:NVDA) have been trending lower with nearly each passing day. That's in spite of some new positive catalysts emerging for NVIDIA's underlying business. As we'd discussed in a post a few days ago, NVIDIA recently unveiled its much awaited GTX 1080 Ti graphics card. And if you go by NVIDIA's claims, the GTX 1080 Ti is its fastest graphics card ever. Yup, the card is reportedly even faster than NVIDIA's top of the line $1200 Titan.
What's more, NVIDIA has decided to take the fight to arch rival AMD (NASDAQ:AMD) by pricing the 1080 Ti very aggressively. NVIDIA has priced its latest offering at $699, way lower than the Titan X, and just $100 more than what its predecessor, the GTX 1080 was priced at. Whether that's going be to as competitive in terms of performance per Dollar when compared to AMD's upcoming line up of Vega GPUs remains to be seen. But what's clear is that NVIDIA has made "the fastest gaming graphics card money can buy" available at a significantly lower price tag than it has in the past. While that's probably partly responsible for the fall in AMD's stock price in the last few days, ironically it doesn't seem to have done much for NVIDIA shares.
That said, having fallen from its high of about $120 a share, many investors may be tempted to consider buying into NVIDIA stock. Similarly, AMD has corrected sharply after what appeared to be an unstoppable run. If you're trying to gauge market sentiment to find a good entry point, technicals analysis can sometimes be a handy tool.
NVDA Stock Technical Analysis Using MACD.
If you've looked at technical charts for NVIDIA lately, you might have noticed how the Relative Strength Index (RSI) and Bollinger Bands, both of which are fairly popular technical indicators, suggest that NVIDIA shares are very close to oversold territory. In fact, both of these indicators clearly signalled an overbought situation for the stock a few days ago. However, NVIDIA has continued to decline gradually nonetheless. And indicators like the MACD and some other simple moving averages are turning out to be relatively more reliable indicators of the current trend.
MACD or Moving Average Convergence Divergence, shows the relationship between two exponential moving averages of price. Exponential moving averages differ from simple moving averages in that they give greater importance to recent movements, as opposed to say a 50 day simple moving average where each of the 50 daily closing price data points are assigned equal weight. MACD is calculated by subtracting the 26 days moving average from the 12 day moving average. A 9 day exponential moving average, called the 'signal line' is plotted alongside, to function as a trigger for buy and sell signals. When the MACD falls below the signal line, it's a bearish trigger, or a sell signal. When the MACD rises past the signal line, the move acts as a bullish trigger, or a buy signal.
If you look at NVIDIA's chart, the MACD fell below the signal line in the second week of February. And the stock, which had already started declining has continued to decline thereafter. Further, since the stock price isn't diverging from the MACD, there's no signal of a reversal in the trend. And the fact that the MACD has fallen below the zero line makes the signal an even more bearish one.
Another bearish signal is visible if you plot the 20 day and 50 day simple moving average, where the 20 day SMA has fallen below the 50 day SMA. This is popularly known as a death cross, and interpreted as a sell signal. So, quite a few bearish signs there for NVDA stock. But where can you expect all of this to stop? NVIDIA hasn't breached its 100 day moving average so far. So, the 100 day moving average, at $95.5 is currently in place as the next support.
AMD Stock Technical Analysis Using MACD.
Like in the case of NVIDIA, AMD too has seen a bearish MACD crossover, with the MACD falling below the signal line on March 2nd, two days after NVIDIA unveiled its GTX 1080 Ti. However, in this case, the MACD is still above the zero line, which is a saving grace. Further, none of the other technical indicators, like the RSI or Bollinger Bands, show a bearish signal. And though the 20 day moving average briefly closed in on its 50 day moving average, it has resumed its uptrend. So, AMD's technical chart doesn't look quite as bad, with the MACD crossover being the only major bearish signal. However, if the stock does continue to fall, the next support will likely come form AMD's 50 day moving average, at $12.21.
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