NVIDIA’s Negative Divergence And Other Stock Market Issues

Many analysts working for major investment houses found themselves busy composing “upgrades” this week after NVIDIA reported even better than expected earnings.

The stock itself blasted higher Thursday morning before the $500 level attracted major selling and now the price chart shows a classic negative divergence, a sign that short-term top may be in.

Here’s how it looks:

The red dotted line connecting the July high with Thursday’s high leans upward but the relative strength index (RSI, below the price chart) leans downward. That’s a negative divergence.

Note that the extraordinary high volume bar from the late May earnings blast is lower than the volume showing up with this quarter’s earnings report. This tends to confirm the price/RSI divergence.

That the stock continues to trade above its 50-day moving average (the blue line) and its 200-day moving average is a positive. My sense is: as investors and traders begin to understand the level of hype behind the artificial intelligence story, the less enthusiastic the buying of the story.

Another problem for NVIDIA is the weakness appearing the formerly super-hot NASDAQ
NDAQ
-100 index as other components weaken. It would be better if the benchmark for the sector showed strength but that’s not the case.

Here’s the daily price chart:

The index is down trending: the red dotted line connecting the mid-July high with the late July high shows it.

Those expecting that a strong earnings report from NVIDIA would boost the entire sector must be disappointed that enough buyers failed to come in and take this back above the downtrend line.

Note that the Nasdaq-100 index is now trading below the 50-day moving average and has been for 10 or so days now.

One major component, Apple, is lacking the usual excitement lately. Take a look at the daily chart:

In an earlier Forbes.com blog post, I mentioned the negative divergence on the Apple chart from the late June high to the mid-July high. The RSI failed to confirm the higher high, a signal that strength had been waning.

Note how price gapped down shortly thereafter and how it’s been unable to get going again. It’s been spending quite a bit of time below the down trending 50-day moving average, not all that bullish.

Another of the major Nasdaq-100 components, Microsoft is showing a similar kind of pattern:

The early June high and the mid-July high are connected by the red dotted line and the RSI shows a slight but definite negative divergence. The stock has been trading beneath its 50-day moving average for the entire month of August — even Thursday’s blast higher on the NVIDIA earnings couldn’t take it above the blue line (now in down trend mode).