Nvidia's stock chart shows how bulls are using the recent pause to get refreshed

By Tomi Kilgore

Stock is building a multi-month 'pennant' chart pattern, which often lead to continuations of previous trend

Nvidia Corp.'s stock has been in a holding pattern the past few months, leading some on Wall Street to wonder if the nearly two-year-long torrid rally, fueled by the artificial intelligence boom, has ended.

But bulls don't need to worry just yet, and may even have reason to feel cheerful. Because that holding pattern is looking a lot like a "pennant," which many Wall Street chart watchers see as a sign suggesting the previous uptrend will eventually reassert itself.

Nvidia's stock (NVDA) fell 3% in afternoon trading, to pull back from a three-month-long descending trendline. It was essentially trading where it was in early June.

The semiconductor maker and AI play's stock has lost 11.2% since it closed at a record $135.58 on June 18, at which time it had posted a year-to-date gain of 173.8%. But the stock has also rallied 21.7% since it closed at a 21/2 -month low of $98.91 on Aug. 7, and has been following an ascending trendline for the past several months.

The chart below, is what a pennant continuation pattern looks like:

Like BTIG technical analyst Jonathan Krinsky said, while the stock's gains this week was "rejected" at the downtrend line, the recent trading pattern looks like "the pause that refreshes."

So while there could still be some volatility in the stock, while the trending resistance and support lines continue to converge, pennants tend to be resolved in the direction of the previous trend, which was up.

The support line currently extends to about $104.75, while the resistance line would extend to about $125.80 on Monday.

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What happens after the uptrend resumes is up for some debate, as there are different ways to calculate a "measured move" continuation.

Some will take the widest part of the pennant, then add it to the breakout point to get an upside target. For Nvidia, that would mean the $46.83 rally from the May 9 closing low to the record high would be added to the point where the stock crosses above the top of the pennant.

If the breakout occurs on Monday, then the measured move target would be around $172.63, or about 43% above current levels.

Others see the pennant as sitting in the middle of a rally, so they will take the length of the "flagpole," or the entire rally, and add that to the breakout point.

For Nvidia, the current flagpole is about $88 tall. So a breakout on Monday would target about $213.80, or 77% above current levels.

Of course, a break of the support line could lead to a full retracement, which is about 60% below current levels.

A check of history shows that the late 2018 downtrend that followed a three-year rally took the stock down 56%, and the late-2021 to late-2022 downtrend that also followed a three-year rally saw the stock lose 66%.

The current rally has only lasted two years.

-Tomi Kilgore

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09-27-24 1352ET

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