NVIDIAShort
NVDA: Early Bears Punished by Devious Whipsaw
Updated
Primary Chart: Two Downward Trendlines, Fibonacci Levels, Major Resistance Zone and Anchored VWAP from October 13 Low
Early bears jumping in to short NVDA last week were punished when NVDA's apparent breakdown failed. NVDA broke decisively below key Fibonacci support as well as an upward TL off the YTD lows from mid-October 2022. But then this breakdown utterly failed with price moving right back up above the TL and into the parallel channel off the YTD lows. Price also reclaimed that key Fibonacci level at $134.85 (the .382 retracement shown as a purple line).
Now price remains squarely within the parallel channel, but on Friday last week, it rallied smack into resistance at the August 4, 2022, VWAP (orange). This VWAP lies at $141.78. Price may pull back from this level a bit even if later it wants to push a bit higher before starting the next leg downward.
SquishTrade monitors the $145.87 to $150.67 range as a key resistance level where NVDA's bear rally could ultimately fail. No one can predict the future, so it's important to stay open minded to probabilities rather than remaining married to a viewpoint such as a rigid bearish or bullish argument. Markets love to destroy well-supported but overly rigid viewpoints.
In short, the probability of the downtrend resuming continues to increase as NVDA rises higher. The downtrend line and pink resistance zone ($145-$151) marks a key spot where the probabilities for a downward move seem better as long as risk is managed with with a tight stop above this key level. SquishTrade recommends continuing to watch DXY and interest rates as this market remains challenging and tricky.
A more conservative approach may be to wait for confirmation rather than getting bearish right at major resistance. The reason for this approach is that one never knows when a bear rally will end, and markets love to whipsaw before starting their real trend move, and this is true especially this year.
Some may see a break above the down TL from March 29, 2022 (light blue TL). The linear chart below shows this TL as having been violated to the upside. But keep in mind that the Primary Chart which is logarithmic shows that this TL has not been touched yet since August 2022. The chart below shows the linear chart's version of the TL break. But on both linear and log charts, the longer-term down TL (gold) has not been broken, and that lies significantly overhead.
Supplementary Chart: Linear Chart Showing TL Break
SquishTrade has been watching NVDA for a short setup, and will continue to monitor how price responds to some key resistance levels. SquishTrade prefers not to consider shorts before earnings. Sure, this may result in missing the move as with AMZN, GOOGL, META, MSFT in recent weeks. But it also may mean missing the complete annihilation of a position as with bears on AAPL or bulls on GOOGL and AMZN around earnings reports in recent days.
And with CPI in the US being released this week (November 10, 2022)—and CPI reports have almost started becoming like FOMC days in terms of volatility in equity markets—and with midterm elections on Tuesday, markets could wipe out a fair number of poorly positioned bears and bulls alike this week. Caution is recommended. Wait for the best setups, the right setups for your trading strategy and approach. And remember, there will always be more setups, so don't let FOMO cloud judgment. Bears can get the same degree of FOMO as the most optimistic bulls.
________________________________________
Author's Comment: Thank you for reviewing this post and considering its charts and analysis. The author welcomes comments, discussion and debate (respectfully presented) in the comment section. Shared charts are especially helpful to support any opposing or alternative view. This article is intended to present an unbiased, technical view of the security or tradable risk asset discussed.
Please note further that this technical-analysis viewpoint is short-term in nature. This is not a trade recommendation but a technical-analysis overview and commentary with levels to watch for the near term. This technical-analysis viewpoint could change at a moment's notice should price move beyond a level of invalidation. Further, proper risk-management techniques are vital to trading success. And countertrend or mean-reversion trading, e.g., trading a rally in a bear market, is lower probability and is tricky and challenging even for the most experienced traders.
DISCLAIMER: This post contains commentary published solely for educational and informational purposes. This post's content (and any content available through links in this post) and its views do not constitute financial advice or an investment or trading recommendation, and they do not account for readers' personal financial circumstances, or their investing or trading objectives, time frame, and risk tolerance. Readers should perform their own due diligence, and consult a qualified financial adviser or other investment / financial professional before entering any trade, investment or other transaction.
Early bears jumping in to short NVDA last week were punished when NVDA's apparent breakdown failed. NVDA broke decisively below key Fibonacci support as well as an upward TL off the YTD lows from mid-October 2022. But then this breakdown utterly failed with price moving right back up above the TL and into the parallel channel off the YTD lows. Price also reclaimed that key Fibonacci level at $134.85 (the .382 retracement shown as a purple line).
Now price remains squarely within the parallel channel, but on Friday last week, it rallied smack into resistance at the August 4, 2022, VWAP (orange). This VWAP lies at $141.78. Price may pull back from this level a bit even if later it wants to push a bit higher before starting the next leg downward.
SquishTrade monitors the $145.87 to $150.67 range as a key resistance level where NVDA's bear rally could ultimately fail. No one can predict the future, so it's important to stay open minded to probabilities rather than remaining married to a viewpoint such as a rigid bearish or bullish argument. Markets love to destroy well-supported but overly rigid viewpoints.
In short, the probability of the downtrend resuming continues to increase as NVDA rises higher. The downtrend line and pink resistance zone ($145-$151) marks a key spot where the probabilities for a downward move seem better as long as risk is managed with with a tight stop above this key level. SquishTrade recommends continuing to watch DXY and interest rates as this market remains challenging and tricky.
A more conservative approach may be to wait for confirmation rather than getting bearish right at major resistance. The reason for this approach is that one never knows when a bear rally will end, and markets love to whipsaw before starting their real trend move, and this is true especially this year.
Some may see a break above the down TL from March 29, 2022 (light blue TL). The linear chart below shows this TL as having been violated to the upside. But keep in mind that the Primary Chart which is logarithmic shows that this TL has not been touched yet since August 2022. The chart below shows the linear chart's version of the TL break. But on both linear and log charts, the longer-term down TL (gold) has not been broken, and that lies significantly overhead.
Supplementary Chart: Linear Chart Showing TL Break
SquishTrade has been watching NVDA for a short setup, and will continue to monitor how price responds to some key resistance levels. SquishTrade prefers not to consider shorts before earnings. Sure, this may result in missing the move as with AMZN, GOOGL, META, MSFT in recent weeks. But it also may mean missing the complete annihilation of a position as with bears on AAPL or bulls on GOOGL and AMZN around earnings reports in recent days.
And with CPI in the US being released this week (November 10, 2022)—and CPI reports have almost started becoming like FOMC days in terms of volatility in equity markets—and with midterm elections on Tuesday, markets could wipe out a fair number of poorly positioned bears and bulls alike this week. Caution is recommended. Wait for the best setups, the right setups for your trading strategy and approach. And remember, there will always be more setups, so don't let FOMO cloud judgment. Bears can get the same degree of FOMO as the most optimistic bulls.
________________________________________
Author's Comment: Thank you for reviewing this post and considering its charts and analysis. The author welcomes comments, discussion and debate (respectfully presented) in the comment section. Shared charts are especially helpful to support any opposing or alternative view. This article is intended to present an unbiased, technical view of the security or tradable risk asset discussed.
Please note further that this technical-analysis viewpoint is short-term in nature. This is not a trade recommendation but a technical-analysis overview and commentary with levels to watch for the near term. This technical-analysis viewpoint could change at a moment's notice should price move beyond a level of invalidation. Further, proper risk-management techniques are vital to trading success. And countertrend or mean-reversion trading, e.g., trading a rally in a bear market, is lower probability and is tricky and challenging even for the most experienced traders.
DISCLAIMER: This post contains commentary published solely for educational and informational purposes. This post's content (and any content available through links in this post) and its views do not constitute financial advice or an investment or trading recommendation, and they do not account for readers' personal financial circumstances, or their investing or trading objectives, time frame, and risk tolerance. Readers should perform their own due diligence, and consult a qualified financial adviser or other investment / financial professional before entering any trade, investment or other transaction.
Note
When this post was published earlier this week, a target range of $145-$150 was discussed as a zone where a lot of resistance lies. Yesterday, price closed at $141.56. Today, price rallied right up into the $145-$150.67 zone. The high today was $148.91.
The original post discussed this zone as follows:
"SquishTrade monitors the $145.87 to $150.67 range as a key resistance level where NVDA's bear rally could ultimately fail. No one can predict the future, so it's important to stay open minded to probabilities rather than remaining married to a viewpoint such as a rigid bearish or bullish argument. Markets love to destroy well-supported but overly rigid viewpoints."
This zone will continue to be monitored with a flexible mindset, recognizing that markets do not necessarily do what bulls or bears want. If NVDA's price closes *above* this zone (above $150.67), SquishTrade will watch equity markets as well as NVDA to see whether this is a whipsaw to take out stops. But the next higher zone to monitor will be the $154-$160 zone, where two key Fibonacci levels are.
Neither NVDA nor NDX have definitively confirmed that the next leg lower has begun. But an interesting development today was that BTC seems to have confirmed that the next leg lower may have begun by forming a new YTD low. Chop could continue for a few days or weeks, but with BTC's new low, another major risk asset has signaled that more downside is to come.
Note
Despite a large-scale selloff today, NVDA held support at $144-$145. It's still in its uptrend channel without confirmation of the next leg lower yet. If CPI is bad, maybe that will be the catalyst? Or maybe earnings . . . If CPI is better than expected, then NVDA and markets and pressure higher in the bear rally
Note
The update yesterday noted NVDA remained within its uptrend channel and had not confirmed the next leg lower. However, after the update, NVDA whipsawed below the uptrend channel a second time! This is perhaps the most challenging market to trade ever. A 30-year options pro told me a while back he had never seen a market as difficult as this year's market.This is why it's so tough to short in bear markets. The rallies can push higher than expected. NVDA is right at the top of the first major resistance range identified. The next major level to the upside is $154 and after that $167, a key price resistance (formerly support)
Note
Until DXY ends its corrective pullback, equities can be supported in this bear rally. Bear rallies can continue further than anyone expects, which is why confirmation that the next leg lower has begun is so important (ST must be reminded of this too!).But DXY is right at a measured move target. Will it reverse higher in late November after a period of chop and indecision? It helps to keep an eye on DXY in this market
Note
NVDA continues to respect its uptrend channel. We will see what happens after earnings. The highest level NVDA can run without violating its LT downtrend from all-time highs is about $197-$204, depending on which day the down TL is evaluated (it decreases dynamically each day given its slope).
But ideally, for the bears, NVDA needs to reverse without breaking above $190.
The log chart gives NVDA more room to rise without negating its downtrend. The linear chart gives it less room. Which chart to use? With big ranges like this, ST favors the log, but the linear should be watched too b/c many market participants watch and react to it.
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