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Nvidia stock set to crash as NVDA flashes strong bear signal

Nvidia stock set to crash as NVDA flashes strong bear signal

Nvidia (NASDAQ: NVDA) started the penultimate week of June strong as it climbed to become the world’s biggest company by market capitalization after overtaking both Microsoft (NASDAQ: MSFT) and Apple (NASDAQ: AAPL).

By the stock market’s closing on Thursday, June 20, the situation changed sharply as, after beginning the day around the record high of $140 per share, NVDA experienced a substantial drop and closed at $130.78.

NVDA stock 1-day price chart. Source: Finbold

Though far from catastrophic, the extended session has also not been kind, and Nvidia’s price today, at press time, stands at an even lower $128.81. For context, had such a market move occurred less than two weeks earlier – before the 10-for-1 stock split – NVDA shares would have fallen more than $100 in a single trading session.

Technical analysis hints at likely crash for Nvidia stock

Along with the price drop leading to the semiconductor giant losing the top spot among the most valuable companies in the world to Microsoft, it also created a worrying chart signal – the bearish engulfing pattern.

NVDA stock price chart with the bearish engulfing pattern highlighted. Source: Barchart

This pattern, as the name would imply, is a bearish technical analysis (TA) signal that hints that the previous uptrend may be at an end. It is visible on a candlestick chart and appears in the form of two candles – the first being green and the second larger and red.

While not a guarantee that Nvidia’s rally is at an end, the bearish engulfing pattern is generally considered a strong signal for investors to contemplate selling or taking a short position.

Additionally, the speed at which NVDA shares have been moving price-wise makes it difficult to positively identify its support and resistance levels, there is strong indication that the blue-chip chipmaker will not suffer a major stock market drop as long as it remains above $121 – near the price that immediately followed the split – during the likely retracement. 

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