- Nvidia stock is trading below a key technical level after this week’s $600 billion rout.
- The decline follows investor concerns over DeepSeek, a new AI model from a Chinese startup.
- The next catalyst for Nvidia is likely to be its earnings report on February 26.
Nvidia stock is on thin ice as it trades below a key technical level for the first time since January 2023.
Shares of the GPU maker have plunged 16% since investors panicked over a new AI model out of China called DeepSeek earlier this week.
The plunge, which erased nearly $600 billion in Nvidia’s market value in a single day, sent the stock to its 200-day moving average.
That threshold is a closely watched technical indicator that helps identify the long-term direction of a trend. When securities fall below their 200-day moving average, it sends a warning to traders that the prior uptrend in a stock price could be on the verge of reversing course.
Nvidia stock closed below its 200-day moving average on Monday, jumped back above it on Tuesday and Wednesday, but then fell back below it during Thursday’s trading session.
Nvidia stock traded at $119.70 on Thursday, below its 200-day moving average of $122.28.
The back-and-forth trading above and below the key threshold suggests that Nvidia is trading at make-or-break levels this week.
According to Will Tamplin, senior analyst at Fairlead Strategies, the downside price action in Nvidia is a warning that more pain is ahead.
“NVDA is seeing a hard test of its rising 200-day MA, near $122. We think the correction is likely to deepen further toward secondary support at roughly $110,” Tamplin told Business Insider.
Tamplin said momentum in Nvidia stock is to the downside in the intermediate term, which is defined as a timeframe of two to four months, adding that the stock has yet to hit oversold territory, suggesting more downside ahead.
“From a long-term perspective, momentum has fallen off since mid-2024, meaning that the primary uptrend is likely to become shallower or turn into a trading range environment for 2025,” Tamplin said.
David Keller, chief strategist at Sierra Alpha Research, told BI that the breakdown in Nvidia is significant considering that the stock has been in a trading range since early November.
Keller said it is a concerning sign that there has been no immediate “buy the dip” activity in Nvidia stock since Monday’s sharp decline.
“Instead of an influx of buyers pushing NVDA back into the consolidation range, we’ve instead seen the price remain generally within the range of Monday’s action,” Keller said. “Until and unless NVDA can regain the $130 level, we would consider this chart guilty until proven innocent.”
For Ari Wald, head of technical analysis research at Oppenheimer & Co., Nvidia stock is unlikely to enter an immediate downtrend. Nor is it likely to resume its two-year long uptrend.
Instead, Wald told BI that the stock should enter a sideways consolidation phase going forward.
“Typically, reversals out of a strong uptrend transition into a range rather than a downtrend meaning continued oscillations around the stock’s flattening 200-day average would be reasonable over the coming weeks to months,” Wald said.
Wald is watching $140 as a resistance level for the stock, as well as $100 for a level of support.
While Wald ultimately expects Nvidia to resume its uptrend in the long-term “based on what we see as middle-innings, growth-led, secular advance,” it makes sense for investors to wait for the uptrend to resume before buying the stock.
“A sidelines approach makes sense while the stock works off prior excesses through the balance of the current cycle,” Wald said.
And while Nvidia’s decline this week has been significant, it’s masking underlying strength in the broader market, according to Ryan Detrick, chief market strategist at Carson Group.
“The bar is set quite high and [Nvidia] needs to report strong earnings to justify the current valuation,” Detrick told BI. “But at the end of the day, rotation is the lifeblood of a bull market and to see rotation out of chips and into things like transports and financials isn’t necessary the worst thing.”
Nvidia will get a chance to prove to investors that its worthy of its premium valuation when it reports earnings after the market close on February 26.