Nvidia Approaches Key Support Levels
With the S&P 500 dropping more than 9% from its July highs and the NASDAQ 100 plunging over 13% during the same period, formerly market-leading tech giants like Nvidia are pulling back to long-term support levels. In this analysis, we will put Nvidia under the spotlight and identify the areas of support with the greatest confluence. We will also discuss how to manage risk in a volatile trading environment.
Nvidia’s Pullback and Key Support Levels
Nvidia’s pullback began earlier than the wider market, with the chipmaker's share price hitting trend highs on June 20th. Prices have been in a mean reversion mode ever since.
When analysing pullbacks, several tools can help us build a picture of confluence to pinpoint where prices may attract the most buying interest:
Horizontal Support Levels: Prior areas of resistance may create support when retested. Nvidia’s price chart shows the shares are retesting the double-top that formed in March. Additionally, the April swing low is a potential support level worth noting.
Fibonacci Retracement Levels: The 50% and 61.8% Fibonacci retracement levels, taken from the October 2023 to June 2024 trend low to high, show that prices are currently retesting the 50% retracement level. The 61.8% level is confluent with the April swing lows.
Anchored VWAP: Anchoring the Volume Weighted Average Price (VWAP) to the October trend lows provides insight into where the average buyer who got in at the bottom is positioned.
200 Day Moving Average (MA): The long-term 200-day moving average, closely monitored by long-term investors and dynamic traders, is currently in a similar area to the anchored VWAP and the April swing lows.
Relative Strength Index (RSI): The RSI index indicates how oversold the stock is as it approaches the key support levels outlined above. While Nvidia’s RSI has not yet moved into oversold territory, it is starting to show signs of bullish divergence.
NVDA Daily Candle Chart
Past performance is not a reliable indicator of future results
Risk Management: How to Trade High Volatility Environments
The recent global stock sell-off has significantly increased volatility, causing the VIX Volatility Index to surge. This increases the likelihood of overnight price gaps when trading individual stocks like Nvidia, making it challenging to manage risk when swing trading.
To navigate this environment, traders might consider reducing their typical position sizes or avoiding holding positions overnight. Incorporating the Average True Range (ATR) into stop placement strategies can also help dynamically account for increased volatility.
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