Nvidia’s Stock Chart Shows How Bulls Are Using the Recent Pause to Get Refreshed

Nvidia Corp.'s stock has been in a state of consolidation over the past few months, prompting some investors on Wall Street to question whether the nearly two-year-long surge, driven by the artificial intelligence (AI) boom, has finally come to an end.

‍

However, there may still be reasons for optimism among bullish investors. The stock’s current price behavior appears to resemble a "pennant" formation, a technical pattern that many chart analysts interpret as a continuation signal. In other words, the current consolidation could indicate that Nvidia’s previous uptrend will soon reassert itself.

‍

In afternoon trading, Nvidia’s stock experienced a 3% decline, pulling back from a descending trendline that has been in place for about three months. The stock’s current price is approximately the same as it was in early June, suggesting a period of stagnation.

‍

Since reaching a record high closing price of $135.58 on June 18, Nvidia’s stock has fallen 11.2%. At that point, it had already posted a massive year-to-date gain of 173.8%. However, since hitting a 2.5-month low of $98.91 on August 7, the stock has rebounded by 21.7%, forming an ascending trendline over the last several months.

‍

This price behavior is what many analysts refer to as a "pennant continuation pattern," which typically signals a temporary pause before the previous trend resumes. BTIG technical analyst Jonathan Krinsky described Nvidia's recent price action as the “pause that refreshes.” While the stock's upward momentum was “rejected” at the downtrend line this week, Krinsky notes that pennants are generally resolved in the direction of the prior trend, which in Nvidia's case, has been upward.

‍

The pattern consists of two converging lines, with the support line currently positioned at around $104.75 and the resistance line near $125.80. As the price of Nvidia’s stock continues to fluctuate between these levels, analysts expect some volatility to persist until a breakout occurs. The general expectation, however, is that the breakout will continue in the direction of the previous uptrend.

‍

A key factor to watch is whether Nvidia’s stock can remain above certain critical levels. According to some analysts, if the stock remains above its support line, investors have little to worry about. However, a break below this line could signal a bearish reversal.

‍

As for the potential upside, there are several ways to calculate the next move after a breakout from the pennant. One method involves measuring the widest part of the pennant and adding it to the breakout point to determine an upside target. Using this method, Nvidia’s rally from the May 9 low to the record high of $135.58—a gain of $46.83—would be added to the breakout level, yielding a target price of approximately $172.63, or about 43% higher than current levels.

‍

Another approach is to view the pennant as occurring in the middle of a broader rally. In this case, analysts would measure the length of the "flagpole," which represents the entire rally, and add that to the breakout point. For Nvidia, the flagpole in the current rally is about $88 tall. If the stock breaks out of the pennant on Monday, this method would project a target price of roughly $213.80, representing a 77% increase from current levels.

‍

While the potential for upside is significant, there is also the possibility that Nvidia's stock could break below its support line, leading to a much sharper decline. In a worst-case scenario, the stock could experience a full retracement, which could take it down by as much as 60% from its current price.

‍

Looking back at Nvidia's historical performance, there are examples of significant downturns following extended rallies. In late 2018, after a three-year rally, the stock fell by 56%. Similarly, from late 2021 to late 2022, following another three-year rally, Nvidia’s stock dropped by 66%. The current rally, by comparison, has only lasted two years, which may suggest that there is still room for further gains before any major correction occurs.

‍

In summary, while Nvidia’s stock has experienced a period of consolidation in recent months, the technical indicators suggest that this could be a temporary pause before the uptrend resumes. The pennant pattern that has formed is often viewed as a bullish signal, and analysts are closely watching the support and resistance lines for signs of a breakout. If Nvidia’s stock breaks out to the upside, the potential for further gains could be substantial, with price targets ranging from 43% to 77% above current levels. However, investors should remain cautious, as a break below the support line could lead to a significant decline, similar to past downturns in the stock’s history. For now, the market is waiting to see which direction Nvidia’s stock will take in the coming weeks.

‍