The key levels to watch on Nvidia's stock chart with its big earnings report almost here

Published Wed, May 22 20241:11 PM EDTUpdated Wed, May 22 20241:25 PM EDT

Nvidia (NVDA) is reporting after the close and if there's one time when the technicals do not give us an edge, it's right before a company's earnings announcement. So why are we even bothering to write about it? For one very important reason: a stock's reaction to any piece of news – micro or macro – tells us a lot more than the news, itself. And charts really help put said reaction into perspective. This being case, in the period just before an earnings announcement, it's a perfect time to: Understand the stock's current chart set-up Analyze how past big reactions have been treated Look at long-term charts Uderstand the current chart set-up Even though we're not placing technical-derived trades in front of the earnings report, it's very important to know what the current chart pattern looks like. Oftentimes, an identifiable formation has been under construction. When that's the case, seeing that formation remain viable post-earnings would be the best-case scenario. Currently, NVDA is in breakout mode after punching through the $915-zone late last week. That's not a lot of wiggle room if the stock reacts negatively to earnings: if the stock undercuts $915 (and stays below it), the breakout would be nullified. If $915 holds, the measured-move upside target of $1,075 would stay alive. Looking at the weekly chart, NVDA's huge run-up has come courtesy of two major pattern breakouts: the first one happened in January '23, while the second one occurred in January '24. The stock endured volatile sideways action for many months prior to both of those breakouts taking place. Currently, NVDA last made a new high on March 4 th . This period isn't quite as long as the prior two but considering that the stock is net flat over the last 10 weeks, the odds of another big move have increased. Analyze how past big reactions have been treated Not surprisingly, the three biggest daily moves since the start of 2023 have come on the days post blow-out earnings +14% (2/23/23) +24% (5/25/23) and +16% (2/22/24). Again, buying in front of earnings always is risky - even in these cases when that ended up being the right course of action. However, buying after those huge one-day moves also proved to be great plays, even though doing that seems even riskier on the surface. The difference is that buying after a great reaction does two things: 1. It eliminates the gap-risk. 2. The gap now can act as a stop. While NVDA didn't log huge moves after each earnings announcement over the last two years, in the three times that it did, it respected its upside gap all three times. In essence, the gap has acted as support. In other words, if an upside gap is filled this time instead, the market could be telling us that something has changed. Look at long-term charts Pre-earnings also is a good time to zoom out and consider the long-term perspective. As we know, with NVDA being synonymous with AI, it's had a meteoric rise. The stock is trying to notch its sixth straight quarterly advance. And from Q4 2022 through Q1 2024, it gained nearly 860%. But let's remember that the company had a storied history even before this last phase. In particular, from Q3 2015 through Q3 2018, it advanced for 13 consecutive quarters and was up a whopping +1365%. In other words, NVDA has had many years of success both as a company and as a stock. It would take a lot more than a reaction to a single earnings report to change that. -Frank Cappelleri Founder: https://cappthesis.com DISCLOSURES: (None) THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL'S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.