NVDA: Placing the Rally in Context
Updated
Primary Chart: NVDA's Primary Trend Since Its All-Time High November 22, 2021, with Anchored VWAPs
SUMMARY:
NVDA has rallied about 15.58% off its YTD lows on October 13, 2022. The lows have not been undercut now for a little over a week. Broader equity indices have rallied as well, with the S&P 500 and the Nasdaq 100 both gaining about 2.3% on Friday. NVDA rallied along side both these indices.
1. NVDA's rally could continue into the FOMC meeting on November 1-2, 2022. The FOMC is likely to increase interest rates by .75 percentage points at the November 2022 meeting. The CME's Fed watch tool, tracking federal-funds-rate futures products, shows the probability of a 75 bps hike at 88% for November. Have markets already discounted this? Probably. What is unknown is whether any change in the Fed's messaging will occur or will the Fed maintain its higher-for-longer hawkish stance to deal with sticky inflation. Fed officials have spoken in recent weeks expressing dissatisfaction with the current inflationary environment and its ramifications for price stability.
2. Pullbacks may likely respect the very short-term VWAP anchored to the YTD low (red VWAP anchored to October 13, 2022). Watch this VWAP for support. If the VWAP is violated, it will be important to determine if the violation is decisive (slicing through and showing no sign of reverting back to the level) or if the violation is minor and brief.
3. NVDA just closed above its 21-day EMA, which lies at 124.16. Today's close was 124.66.
4. Before any higher price targets can be taken seriously, NVDA must reclaim its 34-day EMA (currently just below $130) as well as a key Fibonacci level (teal .236 level at $128.10) (shown just below this paragraph). This is the most conservative target zone for a countertrend rally.
Supplementary Chart: Fibonacci Levels
5. A more ambitious zone for a price target may be considered only if the 34-day EMA is recovered first. This secondary target zone comprises two technical levels: (a) the VWAP anchored to the August 4, 2022, high currently located at 143.08, and (b) the gap fill area (teal-blue rectangle) at $145 to $150.
6. It remains crucial to place any rally into context, even if the rally seems like a powerful rally that is unstoppable for a while, like some of the other bear rallies in this market. Massive bear rallies can trick market participants into thinking the lows may be in, and lure them with fear of missing out. Other countertrend rallies have ranged from 28.9% to 40.17%. Don't be fooled by a show of strength that does not change the overall structure. Countertrend trading is lower probability, but can be lucrative if risk is managed with great discipline.
7. The larger context is a downtrend at the degree of the primary trend. All major swing highs and lows over the past year have been lower highs and lower lows. The anchored VWAP at the all-time high (dark purple) remains well overhead. Price would have to rally and hold the $190-$200 level to show material structural change. All other rallies will constitute noise at the larger degree of trend. In other words, the downtrend channel should contain any rallies for the time being. If not, then it becomes appropriate to consider whether a larger-degree structural change is occurring that may lead to a major trend reversal.
Please note that SquishTrade is "cautiously bullish" only for the next week. In the larger scheme, the outlook remains bearish until substantial evidence appears that structural trend change is occurring at the larger degrees of trend. This remains unlikely with interest rates breaking above a 40-year trendline as discussed in this post:
SUMMARY:
- NVDA appears to have begun a countertrend rally within the context of a sharp downtrend.
- Other countertrend rallies have ranged from 28.9% to 40.17%. Don't be fooled by a show of strength that does not change the overall structure. Countertrend trading is lower probability, but can be lucrative if risk is managed with great discipline.
- The most conservative upside target (resistance) range for this rally is $128-$130. This would be reached, if at all, in the next week or two.
- If the $128-$130 level is reclaimed successfully, then the next higher target to consider is the $145-$150 range discussed below.
- Watch the green uptrend line off the YTD low on October 13, 2022 and the red VWAP anchored to the YTD low. If either is broken, all bets are off.
NVDA has rallied about 15.58% off its YTD lows on October 13, 2022. The lows have not been undercut now for a little over a week. Broader equity indices have rallied as well, with the S&P 500 and the Nasdaq 100 both gaining about 2.3% on Friday. NVDA rallied along side both these indices.
1. NVDA's rally could continue into the FOMC meeting on November 1-2, 2022. The FOMC is likely to increase interest rates by .75 percentage points at the November 2022 meeting. The CME's Fed watch tool, tracking federal-funds-rate futures products, shows the probability of a 75 bps hike at 88% for November. Have markets already discounted this? Probably. What is unknown is whether any change in the Fed's messaging will occur or will the Fed maintain its higher-for-longer hawkish stance to deal with sticky inflation. Fed officials have spoken in recent weeks expressing dissatisfaction with the current inflationary environment and its ramifications for price stability.
2. Pullbacks may likely respect the very short-term VWAP anchored to the YTD low (red VWAP anchored to October 13, 2022). Watch this VWAP for support. If the VWAP is violated, it will be important to determine if the violation is decisive (slicing through and showing no sign of reverting back to the level) or if the violation is minor and brief.
3. NVDA just closed above its 21-day EMA, which lies at 124.16. Today's close was 124.66.
4. Before any higher price targets can be taken seriously, NVDA must reclaim its 34-day EMA (currently just below $130) as well as a key Fibonacci level (teal .236 level at $128.10) (shown just below this paragraph). This is the most conservative target zone for a countertrend rally.
Supplementary Chart: Fibonacci Levels
5. A more ambitious zone for a price target may be considered only if the 34-day EMA is recovered first. This secondary target zone comprises two technical levels: (a) the VWAP anchored to the August 4, 2022, high currently located at 143.08, and (b) the gap fill area (teal-blue rectangle) at $145 to $150.
6. It remains crucial to place any rally into context, even if the rally seems like a powerful rally that is unstoppable for a while, like some of the other bear rallies in this market. Massive bear rallies can trick market participants into thinking the lows may be in, and lure them with fear of missing out. Other countertrend rallies have ranged from 28.9% to 40.17%. Don't be fooled by a show of strength that does not change the overall structure. Countertrend trading is lower probability, but can be lucrative if risk is managed with great discipline.
7. The larger context is a downtrend at the degree of the primary trend. All major swing highs and lows over the past year have been lower highs and lower lows. The anchored VWAP at the all-time high (dark purple) remains well overhead. Price would have to rally and hold the $190-$200 level to show material structural change. All other rallies will constitute noise at the larger degree of trend. In other words, the downtrend channel should contain any rallies for the time being. If not, then it becomes appropriate to consider whether a larger-degree structural change is occurring that may lead to a major trend reversal.
Please note that SquishTrade is "cautiously bullish" only for the next week. In the larger scheme, the outlook remains bearish until substantial evidence appears that structural trend change is occurring at the larger degrees of trend. This remains unlikely with interest rates breaking above a 40-year trendline as discussed in this post:
Note
Price continues to hold the short green TL from the mid-October 2022 low as well as the red VWAP anchored to the same low.Watching to see whether price can reach the underside of the 34-day EMA near 130.
Trade closed: target reached
On October 21, SquishTrade identified a conservative upside target of $128-130 (a key Fib level at $128.10 and the 34-day EMA around 130).NVDA is now trading at $133-$134. So the conservative price targets have been reached within 5 trading sessions after October 21—which points to the powerful nature of these bear market squeezes.
The more aggressive targets are $143, 145-150. One shouldn't rule out a move that high—bear rallies always surprise to the upside, and just when bears throw in the towel, they tend to reverse back lower (unfortunately). So trying to trade further upside here is very risky at this point! Countertrend trades are lower probability, but when you add in OB readings in a primary downtrend along with a FOMC meeting approaching, it just doesn't make sense.
But given the countertrend nature of this rally (at least at this point), the odds become lower of reaching them.
Note
Here is an update with key levels to watch. The update shares a logarithmic chart with displays somewhat different information than a linear chart. 
Trade closed: target reached
In this post on October 21, 2022, NVDA's price closed at $124.66. SquishTrade discussed two target zones. The first zone for the countertrend rally was $128-$130 was reached October 26 within a week (5 sessions).The second target zone for this bear rally has now been reached. SquishTrade wrote on October 21: "If the $128-$130 level is reclaimed successfully, then the next higher target to consider is the $145-$150 range discussed below."
As stated in a more recent NVDA post, SquishTrade is monitoring this level for a reversal and resumption of the downtrend -- however doing so with a flexible mindset, as corrective rallies can turn out to be complex and push much further than expected.
If $150.67 is exceeded on a close, then the next resistance to monitor is $154, then $165-$170. Much will depend on (a) CPI and (b) earnings for NVDA reported in mid-November.
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