To The Moon

Is Nvidia's Pullback an Opportunity to Buy?

$NVIDIA Corp(NVDA)$  , the AI chip giant, witnessed a significant drop at Monday's close, falling by 6.68% and registering its largest drop in two months. This downturn marks the third consecutive day of losses, with a cumulative decline of 12.88% over the span. Notably, just last Tuesday, Nvidia had surpassed $Microsoft(MSFT)$  , clinching the title of the most valuable company by market capitalization.

What Could Have Caused the Consecutive Decline?

• Nvidia Insiders Selling

The recent pattern of consistent sales by Nvidia executives and directors has garnered attention by investors. In a notable disclosure, CEO Jensen Huang sold 720,000Nvidia shares between June 13 and June 21, amounting to a total of $94.6 million, achieving an average price of $131.44 per share. CFO Colette Kress liquidated 100,000 shares for an estimated $12.7 million last week. Additional significant transactions include Director Mark A. Stevens' sale of 470,000 shares for approximately $58.3 million on June 11, and Director Tench Coxe parting with 100,000 shares for close to $119.5 million on June 7. 

• "Triple Witching Day" Intensifies Market Fluctuations

Last Friday witnessed a substantial volume of option expirations due to the "Triple Witching Day," leading to an increase in market trading activity. The concurrent expiration of these options, alongside the customary index rebalancing and adjustments in ETFs, has been a contributing factor to the amplified volatility in the market. Nvidia's stock experienced an intraday drop of around 5% on that day. Statistics revealed that out of the $5.5 trillion worth of various securities derivatives expiring on Friday, those related toNvidia were the second most valuable, trailing only the $S&P 500(.SPX)$  .

• Partial Profit-Taking by Investors

Nvidia has experienced a meteoric rise this year, propelled by the relentless demand for its chips, which are a mainstay in the artificial intelligence computing sector. Despite the recent declines,Nvidia's year-to-date increase remains a staggering 138.6%. From the interim low on April 19 to the post-stock split acceleration, culminating in Tuesday's peak market capitalization,Nvidia's share price has surged by 60%.

Traders Are Looking for Support Levels

Amid a massive $430 billion sell-off spanning three days, traders are increasingly turning to technical analysis in search of clues for Nvidia's potential bottom. Technical analysis, though not an exact science, can offer investors a valuable guide by examining historical trading patterns. Taking a technical perspective, Nvidia's stock price has entered its first technical correction since April, marked by a decline exceeding 10% from recent highs.

Buff Dormeier, the chief technical analyst at Kingsview Partners, points to the $115 zone as a pivotal Fibonacci retracement level. This tool is commonly utilized by technical analysts to determine potential support or resistance thresholds for equities and other assets. The 38.2% retracement fromNvidia's April intraday low to its peak last week hovers around 2% below the price at Monday's close. Dormeier suggests that there is short-term support near the $115 mark, with a subsequent significant threshold at $100.

Bruce Zaro, chief technical strategist at Granite Wealth Management,said that “For a stock in an uptrend likeNvidia, breaching that first level of support wouldn't be a concern." He added that a drop below $100, however, would be.

What Do the Analysts Say?

Wall Street optimists maintain that the recent market downturn represents a mere healthy correction, and have even proceeded to elevate the target price for Nvidia. Their confidence is primarily rooted in Nvidia's continued industry dominance, which is expected to potentially ignite a new industrial revolution. The rapid revenue growth, robust cash flow, and solid profits are cited as the sturdy pillars that underpin substantial stock price appreciation.

Jefferies analyst Blayne Curtis raised his target price onNvidia stock to $150 from $135, keeping a Buy rating andwrote in a research note on Sunday.

"Nvidia's stock's steep climb...could make it vulnerable to near-term profit-taking. However, any volatility could be short-lived." BofA Securities analyst Vivek Arya wrote in his research note. He suggests that any resulting fluctuations are likely to be transient and maintains a Buy recommendation on Nvidia, with a target price of $150, highlighting the stock as a top pick.

However, the recent sustained surge in Nvidia's stock price has made some Wall Street professionals uneasy. They believe the stock has been overly hyped by the market. On Sunday, BTIG strategist Jonathan Krinsky issued a cautionary note in his report. He indicated thatNvidia's performance has not only surpassed that of any U.S. company during the late '90s tech bubble but also that its stock price is now approximately 100% higher than its 200-day moving average.

Since 1990, no American company has seen its stock exceed 80% above the 200-day moving average at the time it reached the status of the largest by market capitalization. The closest instance was $Cisco(CSCO.US)$in March 2000, when its stock was 80% above its 200-day moving average, a precursor to the peak of its share price.

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