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Nvidia Looks Vulnerable After Nexus Loss

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While its discrete graphics card business is still relatively strong, this is a market that, overall, will continue to shrink in the coming months and years.

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But, that signal has now been negated by the announcement of the expansion of the share buyback program which began back in November. It is easy to spot the support in the price of the stock every time it approaches $12 per share. I would suspect from the chart action here that Nvidia is a buyer of its own stock at this level. This may be the reason for the long tails on the weekly candles (black arrows).

One of the effects of the share buyback has also been to dampen volatility in the stock. Below is a table of the weekly trading statistics for Nvidia. For the period these statistics cover (165 weeks) the average weekly price envelope (High to Low) has been $1.29. It is clear that since November the price volatility weekly has been far less than that. I also note that the short interest in Nvidia rose sharply after the buyback began. So, it looks like the stock is trapped between the company supporting the stock from below and short-sellers capping it below $13.20.



Where are we now? The stock closed above $13.00 last week (#2) at $13.09, which would have been my initial target for a bullish breakout. But, the stock could not muster the strength to close above the December high at $13.19. There is a ~79% chance of a $0.15 move which would break the high from the week of April 8 to April 12, and on that occurring would limit the size of any downside reversal. A close this week above that price should bring in momentum players and induce some short selling and create the opportunity for a rally. If we see a weekly close above that price, it would bode well for a more significant move higher, especially if April closes above that level.

But, fundamentally, the company is on shaky ground while the stock is being actively supported in price. Right now, the bullish general market environment is Nvidia's best chance to see a rally for the rest of 2013. If it does not happen the current rangebound activity will likely continue.

No positions in stocks mentioned.
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