Nvidia shares flashed a concerning “death cross” signal on Thursday, signaling the potential for a downtrend after an extraordinary 948% rally since October 2022.
A “death cross” occurs when a stock’s 50-day moving average (MA) falls below its 200-day moving average.
What is a ‘Death Cross’ and Why It Matters
On Thursday, Nvidia’s 50-day MA dropped to $127.39, dipping below the 200-day MA of $127.73 early in the trading session. However, the stock quickly recovered, rising about 1%.
This technical pattern is often seen as a warning of a possible price decline. It suggests that, after a huge rally, Nvidia’s stock may be approaching a period of decline or consolidation.
Historical Context: Previous ‘Death Cross’ and Market Behavior
The last time Nvidia experienced a “death cross” signal was in April 2022, amidst a broader bear market. The stock then fell 47% before bottoming out in October 2022.
Despite the historical context, not all “death crosses” lead to major downturns, according to analysts.
Analyst View: Death Cross May Not Predict Major Decline
Ari Wald, head of technical analysis at Oppenheimer & Co., downplayed the significance of the signal, suggesting it may not lead to a major decline. Wald pointed out that “while every major decline starts with a ‘death cross,’ not every ‘death cross’ leads to a major decline.”
He explained that the current signal may be more reflective of Nvidia’s range-bound trading behavior over the past several months. Nvidia has shown limited progress over the last 6-9 months, indicating a loss of momentum.
Broader Market Context and Caution from Analysts
Wald is staying cautious on Nvidia stock for now, particularly given the broader market’s recent decline. The S&P 500 entered correction territory last week, falling 10% from its peak in February.
Wald advised that until there are signs the market has bottomed, he remains on the sidelines. He also emphasized the need to respect the deterioration in Nvidia’s trend, including the most recent “death cross.”
Key Levels to Watch
Wald identifies $128 as a key resistance level and $100 as a crucial support level for Nvidia shares. Investors should monitor these levels closely to gauge the stock’s next move.
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