Crypto chipmaker shares crumble 60%. Time to buy or sell?

  • master
  • 01.02.2019
  • Comments Off on Crypto chipmaker shares crumble 60%. Time to buy or sell?

Bitcoin mining chipset

Nvidia was one of Wall Street’s best-loved stocks. The chipmaker rode the cryptocurrency boom to incredible heights thanks to their high performing graphic cards for crypto mining rigs. From January 2016, the stock rallied nearly 1,000% higher to its all-time high in October 2018. But then something happened that no one from Wall Street predicted.

Shares in Nvidia have since crumbled nearly 60% lower. In fact, it has already posted its worst daily decline in 2019, dropping nearly 15% lower on January 28. Analysts at Morgan Stanley have downgraded the stock. Bank of America Merrill Lynch has removed the stock entirely from its list of best ideas. What is going on and is there an opportunity here for traders?

Nvidia shares movement

Source: Admiral Markets MT5 Supreme Edition, NVIDIA, Weekly – Data range: from November 27, 2011 – January 30, 2019, accessed on January 30, at 12:10 PM GMT. – Please note: Past performance is not a reliable indicator of future results.

In today’s article, we analyse all the details you need to know, as well as the possible short term and long term trading opportunities that are making Nvidia traders excited.

Nvidia’s Epic Rise to Fame

Nvidia revolutionised the gaming industry by pioneering the graphics processing unit (GPU) in 1990. Since then, the company has remained at the forefront of all things technology. Nvidia’s market leading graphics card saw a huge increase in demand during the cryptocurrency boom as they were the ‘go to’ cards for crypto mining rigs.

However it wasn’t just the crypto boom that got investors excited. The company has produced – what they claim – is the holy grail of graphics cards. After 10 years in development, it is set to revolutionise the gaming industry – yet again – by recreating how light behaves in the physical world.

The company is also leading the way in the business of self-driving cars. They’ve already partnered with 370 companies to share their supercomputer which compiles and processes all the data needed for a self-driving car – aiding the new, fast growing industry. However, while investors were snapping up shares during the boom – they are now running for the exits.

Nvidia’s Crash and Burn Story

After falling nearly 60% from its peak in October 2018, it seems like Nvidia’s future has now been rewritten. There is a multitude of reasons why its shares have been in freefall. Here are just a few:

  • Earnings miss: In the wake of waning demand for their chips, the company posted revenue of $2.2 billion in the last quarter. This fell well below the $2.7 billion analysts were expecting. A $500 million miss in revenue proved to be a big concern for investors.
  • Analyst downgrades: Institutions such as Morgan Stanley, Barclays, and Needham have downgraded the stock on the back of its earnings miss. Analysts at Morgan Stanley have since slashed their price target for Nvidia shares from $220 to just $148.
  • Slowdown in cryptocurrency mining: Miners of digital currencies make their money based on the value of a cryptocurrency. In the most recent cryptocurrency crash, mining tokens became much less profitable. This slowdown massively impacted Nvidia’s revenue.
  • Slowdown in China: Both Apple and Intel’s share prices have struggled in recent months due to a slowdown in Chinese demand. As some of Nvidia’s biggest customers, the chipmaker couldn’t escape problems in the Greater China region.

The volatility in Nvidia shares has been huge. Sometimes, this can translate into good trading opportunities for traders experienced enough to handle such volatile conditions. Now that Nvidia’s cards are on the table let’s take a look at a chart of its share price for possible long term and short term trading opportunities.

The Long-Term Trading View

The meteoric rise of Nvidia’s share price is clearly demonstrated, as well as the sharp sell-off that happened after:

Nvidia shares history

Source: Admiral Markets MT5 Supreme Edition, NVIDIA, Weekly – Data range: from June 28, 2015 – January 30, 2019, accessed on January 30, at 12:13 PM GMT. – Please note: Past performance is not a reliable indicator of future results.

The Technical Picture

Nvidia’s share price is approaching some interesting long term levels of support. Currently, the share price is trading around the 200 weekly moving average (denoted by the green line on the chart). However, there is also another level of support at $114 market by the blue horizontal line. Both of these support lines provide a possible zonal area where longer term traders may start to initiate long positions.

However, for taking such a longer term position, most traders – and investors – would like to see a compelling fundamental picture that will help to drive the share price higher in the long term.

The Fundamental Picture

The recent shakeout in Nvidia’s share price has largely been due to a slowdown in the Chinese market and cryptocurrency mining. However, with these events now fully priced in to the share price – is there anything else happening at the company that has investors excited? According to founder and CEO, Jensen Huang, there is. He highlights that Nvidia has strategic positions in some of the most important, large, and growing industries such as gaming, design, artificial intelligence and autonomous vehicles.

This has led to one analyst at UBS to actually upgrade Nvidia’s stock to a buy rating stating that the recent sell-off now “sets the stage for a positive revision cycle starting this summer”. Longer term investors may consider using an investing account – such as Admiral.Invest – to invest into longer term stock positions from 15 of the largest stock exchanges in the world with commissions starting as low as $0.01 per share.

The Short-Term Trading View

The daily chart of Nvidia’s share price shows that the 20 moving average (the red line on the chart) has helped prices to remain weak.

Admiral Markets MT5 Chart

Source: Admiral Markets MT5 Supreme Edition, NVIDIA, Daily – Data range: from May 1, 2018 – January 30, 2019, accessed on January 30, at 12:30 PM GMT. – Please note: Past performance is not a reliable indicator of future results.

The Technical Picture

If traders can keep the price below this moving average, the bias would be for more downside pressure on the stock. Traders may consider using simple price action based strategies for possible entry, stop loss, and target levels. For example, a popular price action pattern is the bearish pin bar reversal. This is where a bar makes a new high but then closes all the way back down in the lower half of the bar.

On December 18, 2018, Nvidia formed a bearish pin bar reversal. A trader could have entered a sell order on the low of this bar at $145.40. A stop loss could be placed on the high of the bar at $150.29. With a 10 lot position size, this would result in a $48.90 loss if the entry and then stop loss was triggered. However, in this instance, the share price continued to move lower. Targeting the next historical low at $138 would have resulted in a profit of $74.

The Fundamental Picture

The short term fundamental picture is mixed as momentum is clearly to the downside but with longer term players looking for long term buy positions. This combination can result in some good short term trading opportunities in both directions – until a new clear trend forms. Therefore, tracking the price action of Nvidia stock using the Admiral Markets MetaTrader 5 platform could prove to be useful for both short term and long term traders.

Conclusion

With all the recent bad news seemingly priced into Nvidia’s share price, it’s a level playing field on who will now take control of the market – the buyers or sellers. Who you will be trading with?

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