{"id":1933,"date":"2024-03-09T12:05:35","date_gmt":"2024-03-09T12:05:35","guid":{"rendered":"https:\/\/businesstriumphs.com\/index.php\/2024\/03\/09\/bearish-engulfing-pattern-marks-top-for-nvda\/"},"modified":"2024-03-09T12:05:35","modified_gmt":"2024-03-09T12:05:35","slug":"bearish-engulfing-pattern-marks-top-for-nvda","status":"publish","type":"post","link":"https:\/\/businesstriumphs.com\/index.php\/2024\/03\/09\/bearish-engulfing-pattern-marks-top-for-nvda\/","title":{"rendered":"Bearish Engulfing Pattern Marks Top For NVDA?"},"content":{"rendered":"
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Large-cap growth stocks have been outperforming for quite some time, with semiconductors perhaps the most representative of the strength of that trade in recent months.\u00a0In fact, the semiconductor ETF (SMH) finished the week up 29% year-to-date, far outpacing the S&P 500 and Nasdaq 100, which are both up about 7.5% in 2024.<\/p>\n

Nvidia (NVDA) has been perhaps the most overheated of the Magnificent 7 stocks, gaining over 87% in 2024 through Thursday\u2019s close.\u00a0Friday, however, saw NVDA open higher and close lower, creating the dreaded bearish engulfing pattern.\u00a0Does this mean the top is in for Nvidia?<\/p>\n<\/p>\n

Let\u2019s start by reviewing the long-term trend going into this week, which has been nothing short of exceptional.\u00a0After breaking above resistance around $500 in early January, Nvidia embarked on a consistent uptrend of higher highs and higher lows.\u00a0NVDA almost doubled in value through this week, reaching an intraday high of $974 on Friday.\u00a0But the lower close is what really tells the story here.<\/p>\n<\/p>\n

A bearish engulfing pattern<\/a> is a classic two-bar reversal pattern where an up close, if followed by a down close, and day two\u2019s real body \u201cengulfs\u201d the range of day one\u2019s real body.\u00a0The intraday chart for these two days shows how the short-term price action demonstrates a true reversal in sentiment.<\/span><\/p>\n<\/p>\n

Now we\u2019re seeing this week\u2019s price action using 5-minute candles.\u00a0Note how Thursday\u2019s rally continued the upward trajectory that really began on Tuesday going into the close.\u00a0Friday saw a big gap higher at the open, but, after an initial rally, NVDA turned lower and continued this pullback into the afternoon.\u00a0By the close, Nvidia finished well below Thursday\u2019s trading range, creating the bearish engulfing pattern.<\/p>\n<\/p>\n

The good news is about two-bar candle patterns is that they provide a built-in risk management system!\u00a0Steve Nison is generally credited with bringing candlestick charting, a traditional Japanese form of technical analysis, and promoting its merits to Western technical analysts.\u00a0I spoke with Steve years ago about reversal patterns, and he noted that the high of the two-bar bearish engulfing pattern can be used as a simple stop-loss technique.<\/p>\n

So, if NVDA would push above the $975 level next week, based on Friday\u2019s intraday high, that would negate the reversal pattern and suggest further upside potential.\u00a0Otherwise, the bearish implication of this pattern remains in place, and suggests that semiconductors may be in for a pullback as we continue through the month of March.<\/p>\n

Author\u2019s note: I\u2019ve set a price alert for NVDA breaking above $975 using the <\/em>Technical Alert Workbench<\/em><\/a>, and I\u2019d encourage you to do the same!<\/em><\/p>\n

If we assume that \u201cthe top\u201d is in, at least for now, then how can we identify some potential downside targets for Nvidia?<\/p>\n<\/p>\n

A trendline based on the major lows in 2024 yields a downside objective around $760-775, depending on how quickly a pullback would occur.\u00a0This would also line up fairly well with Nvidia\u2019s most recent swing low, around $775.\u00a0If this level would fail to hold, I\u2019d key in on the 200-day moving average, which currently sits around $660.<\/p>\n<\/p>\n

A quick Fibonacci analysis would suggest an initial downside target around $750, which would represent a 38.2% retracement of the October 2023 low to the recent high around $975.\u00a0The 200-day moving average also lines up well with the 50% retracement level around $682, giving additional emphasis to this as a potential downside support level.<\/p>\n

As I mentioned at the beginning of this article, I would consider charts like Nvidia to be innocent until proven guilty.\u00a0This means an uptrend is in place as long as we continue to observe a pattern of higher highs and higher lows.\u00a0But, by noticing a bearish engulfing pattern on NVDA, as well as on the S&P 500<\/a> and <\/span>Nasdaq 100<\/a>, we can anticipate how short-term price reversals could indeed manifest into broader declines that could catch investors by surprise!<\/span><\/p>\n

<\/div>\n

RR#6,<\/p>\n

Dave<\/p>\n

P.S.<\/strong> Ready to upgrade your investment process?\u00a0Check out my free behavioral investing course<\/a>!<\/span><\/p>\n

David Keller, CMT<\/strong><\/p>\n

Chief Market Strategist<\/p>\n

StockCharts.com<\/p>\n

Disclaimer: <\/em><\/strong>This blog is for educational purposes only and should not be construed as financial advice.\u00a0The ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional.<\/em><\/p>\n

The author does not have a position in mentioned securities at the time of publication. Any opinions expressed herein are solely those of the author and do not in any way represent the views or opinions of any other person or entity.<\/em><\/p>\n<\/div>\n","protected":false},"excerpt":{"rendered":"

Large-cap growth stocks have been outperforming for quite some time, with semiconductors perhaps the most representative of the strength of that trade in recent months.\u00a0In fact, the semiconductor ETF (SMH) finished the week up 29% year-to-date, far outpacing the S&P 500 and Nasdaq 100, which are both up about 7.5% in 2024. Nvidia (NVDA) has […]<\/p>\n","protected":false},"author":0,"featured_media":1934,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[2],"tags":[],"class_list":["post-1933","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-stock"],"_links":{"self":[{"href":"https:\/\/businesstriumphs.com\/index.php\/wp-json\/wp\/v2\/posts\/1933","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/businesstriumphs.com\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/businesstriumphs.com\/index.php\/wp-json\/wp\/v2\/types\/post"}],"replies":[{"embeddable":true,"href":"https:\/\/businesstriumphs.com\/index.php\/wp-json\/wp\/v2\/comments?post=1933"}],"version-history":[{"count":0,"href":"https:\/\/businesstriumphs.com\/index.php\/wp-json\/wp\/v2\/posts\/1933\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/businesstriumphs.com\/index.php\/wp-json\/wp\/v2\/media\/1934"}],"wp:attachment":[{"href":"https:\/\/businesstriumphs.com\/index.php\/wp-json\/wp\/v2\/media?parent=1933"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/businesstriumphs.com\/index.php\/wp-json\/wp\/v2\/categories?post=1933"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/businesstriumphs.com\/index.php\/wp-json\/wp\/v2\/tags?post=1933"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}