Gearing Up For Nvidia's Q1 Earnings: A Technical Take

One of the hottest stocks in the market in recent years, NVIDIA Corporation NVDA has cooled off in the past two months ahead of Q1 earnings expected out on May 9. Nvidia received a double downgrade from Nomura and BMO Capital on February 22 and 23. Since that time, Nvidia has given both bullish and bearish technical traders reason for optimism. Here’s a look at the levels traders are watching ahead of earnings.

The Bull Case

Nvidia bulls are optimistic because, even after a 500 percent three-year gain and back-to-back analyst downgrades, the pull-back was halted at $95 twice since the beginning of March. Nvidia seems to have plenty of buyers in the $95 region at this point, and the recent pullback may simply be a case of healthy consolidation ahead of the next leg up. In fact, $95 represents a previous resistance level for the stock dating back to November and December of 2016, making it an appropriate level for support looking forward.

The Bear Case

Nvidia bears, on the other hand, also have plenty of reasons to be optimistic. While support at $95 has been holding steady, Nvidia’s peaks have been getting lower and lower since the stock hit an all-time high of around $120 back in February. The stock’s first bounce off of $105 took it up to only about $110, and its second bounce now has Nvidia up against resistance at around the $105 level.

The lower highs and steady lows have created a technical formation known as a descending triangle. Descending triangles are typically bearish patters that result in the breakdown of a support level after a stock is “pinched” between descending resistance and horizontal support.

The other bearish signal in Nvidia’s chart is the gaping hole that was created back in November when Nvidia reported Q3 2016 earnings. The resulting gap between around $73 and $78 was never filled, meaning the stock could be in for meaningful downside if it breaks below $95.

Levels To Watch

Nvidia bulls will be watching the $105 level for any sign the stock has broken out of the triangle to the upside. A breakout above $105 would put the stock in-line to test its March high of $110.

Bears will be looking out for a dip below $95, which could signal a technical break down. If Nvidia stock drops below $95, the follow-through could push shares down to the $73 level to fill the November earnings gap before a potential recovery somewhere down the line.

Joel Elconin contributed to this article.

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