Shares of NVIDIA Corporation have fallen by nearly 14% in the last 1 month. However, NVDA stock could be headed higher soon.
Shares of Santa Clara, California-based NVIDIA Corporation (NASDAQ:NVDA) have headed lower over the last month or so. NVDA stock closed the last trading session at a price of $98.43, down 18.6% from its Feb 7 high of $120.92 per share. While we believe that the NVIDIA's long-term growth story is still intact, what about the near term move? Will NVDA stock continue to move lower? While the stock could be headed marginally lower, a bounce could be just around the corner. Here is why.
NVIDIA stock Put/Call ratio implies a positive move
The put/call ratio is an important indicator of what investors/market participants expect a stock to do in the near future. A put/call ratio greater than 1 indicates a negative investor sentiment while a value lesser than 1 indicates a bullish investor sentiment. The put/call ratio can be calculated based on the open interest or on the basis of overall contract volumes. NVIDIA's put/call ratio, based on open interest, stood at 0.92 at the end of last week, down from over 1.05 in mid-Jan. The change in the put/call ratio indicates that investors now expect NVIDIA stock price to head higher in the near term.
NVIDIA Corporation Short Interest Is Falling
In addition to the drop in the put/call ratio, short interest is another indicator of investor sentiment. As per Investopedia, "short interest is the quantity of stock shares that investors have sold short but not yet covered or closed out. Short interest is a market-sentiment indicator that tells whether investors think a stock's price is likely to fall." A rise in short interest indicates that investors expect the stock price to correct while a fall in the short interest indicates expectations of an increase in stock price.
As per the latest short interest data (as on Feb 15 reporting cycle), the short interest in NVIDIA shares fell to a 12 month low, with 22.2M shares sold short at the end of the last reporting cycle. Given the 10% fall in NVIDIA stock price since Feb 15, it's highly probable that the short interest ticked lower since then.
NVIDIA Stock Is Trading Below Key Moving Averages
The short interest data and put/call ratio imply that the worst might well be over for NVIDIA stock. However, a word of caution for NVIDIA bulls. NVDA stock price has now fallen below the critical 50 day moving average on the daily chart. The 50 day moving average had represented a strong support level, having supported NVIDIA stock price 3 times over the last 1 year. The next meaningful support for NVDA stock is at its 100 day moving average, which currently sits at 94.38, implying that the stock could fall a further 4% before a likely rebound. On the higher side, the recent 50 day moving average, at 107.66, implies a strong resistance. A rise above the 50 day moving average or a bounce off from the 100 day moving average, accompanied by strong volumes, will provide long-term investors with good re-entry points to buy into NVDA stock.
The recent downtrend in NVDA stock price has been accompanied by a drop in the short interest ratio as well as the put-call ratio, implying a change in investor sentiment. However, the stock could see more downside, as the next meaningful support is nearly 4% below the last closing price. Hence, investors would do well to wait for a breakout, accompanied by strong volumes, to buy more NVIDIA shares. Looking to invest in the technology sector? Here are our latest Top Stock Picks from technology sector which have consistently outperformed the NASDAQ over the years.