Nvidia (NASDAQ: NVDA), the semiconductor giant, might be on the brink of a significant downturn, according to a recent technical analysis.
As a recap, NVDA has been the darling of the stock market, leading technology equities that have rallied significantly due to their bet on artificial intelligence (AI). Nvidia’s gains have been enhanced by the company’s recent 10-for-1 stock split, which made shares more accessible to investors.
As of press time, the stock was trading at $129, boasting an impressive year-to-date gain of 168%.
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In examining the price trajectory, analyst CyclesFan suggested in a post on X (formerly Twitter) on July 14 that a potential pullback is imminent based on NVDA’s historical patterns.
Bearish sentiment on the horizon
Nvidia’s weekly candle recently formed a small-range shooting star pattern, often seen as a bearish reversal signal. This specific candle pattern was last observed in October 2023, a period that was not an all-time high for Nvidia. Following this pattern in 2023, Nvidia experienced a substantial drawdown.
According to the analysis, recent historical trends reveal notable periods of correction for Nvidia. From August to October 2023, the stock dropped by 21.06%, reaching $111.04. Then, from February to April 2024, it experienced another significant drop of 22.37%, reinforcing a recurring correction pattern.
Currently, Nvidia’s trading price of $129 is under scrutiny, with predictions suggesting another drawdown may be imminent. CyclesFan anticipates that, based on previous 22% drawdowns, Nvidia’s price could bottom out around $110. This projection aligns with prior corrections and the technical signals currently observed.
“Given the two 22% drawdown downtrends, this one may bottom around 110,” the analyst noted
Implication on the broader tech sector
The broader implications of this potential drawdown are noteworthy. Nvidia has been a bellwether for the AI and semiconductor sectors, with its stock performance often mirroring the overall sentiment in these markets.
A substantial correction in Nvidia’s stock could signal a broader market reassessment of valuations in the AI space, potentially leading to a wider correction.
Indeed, the projection aligns with ongoing market concerns that the current market rally might come to an end soon. It’s worth noting that Nvidia has been among a select few equities dominating the S&P 500 index, an element considered a potential signal for a reversal.
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