Nvidia Aka NVDA Stock Is Way Overpriced Right Now. Enter Long With Extreme Caution
Today, June 13, 2024, the Nvidia stock madness continued by gapping up to 129.39 after yesterday’s close of 125.20, which was already too high, but it’s trading in one of these crazy, runaway, upward trends right now. So, It appears that anything goes, but that doesn’t take away from the fact that it’s extremely overpriced both on a fundamental level, but even more importantly from a technical analysis level.
What I will attempt to do in this article is briefly explain why it’s fundamentally trading to high, and go really indepth on why it’s technically trading too high.
I love looking at technical analysis because it reveals what’s really going on with a stock price in real time, and it can give you really good entry and exit points. With all that said, let’s just get into it. I’ll start with a very simple fundamental reason for why NVDA is overpriced right now.
It’s currently trading with a PE ratio of 75.85. Usually, when a stock is trading over a 30 PE, it’s considered way too high, but stocks trade at high PEs all the time. So, I don’t really focus on that a lot. I just wanted to throw that in here just to say, ‘Hey, I did do some fundamental analysis.’
What I really like to focus on is the technical analysis. I included a snapshot of the NVDA daily/8 hour timeframe chart, which shows data from February 2024 until today, June 13, 2024. It’s got a couple of moving averages on it, but what I really want you to focus on is the 20 ma (moving average), which is the blue line on the chart.
Think of the 20 ma as what the stock probably should be trading at from a technical analysis point of view. Not fundamentals, because the fundamentals have pretty much been thrown all the way out of the window at this point. When the stock price gets way above the 20 ma, it’s too expensive. When it’s way below it, it’s trading cheap.
Again, this is from a technical analysis evaluation. Fundamentals have been totally ignored at this point. This stock is all the way in trend-trading mode, and until the big banks/institutions drop in here and pull some money out with some big sell orders, the price will keep moving in this upward trend.
So, what we learn in technical analysis is when the price gets too far out wide from the 20 ma either above it or below it, it’s usually due for a pullback of some sort. Sometimes, the pullback is to the 5 period ma (yellow line on the chart), the 8 period ma (red line on the chart) or closer to the 20 ma depending on how strong the trend is.
What I really look for is a pullback to the 20 ma (blue line on the chart) for the best entry. However, even those 5ma or 8ma pullbacks can be rather large when trading a stock like NVDA. Right now, NVDA’s price is trading way above even the 5ma, and this is why I’m really telling you guys that this stock is way overpriced right now.
I get it. If you’re really bullish on NVDA right now, I’m not saying that you shouldn’t look to buy it. I’m saying at least wait for a pullback to the 5 ma area. More ideally, I would wait for a pullback to at least the 20 ma zone, and only when a green/white buy candle takes out a red candle in that 20ma area, signalling a continuation of the upward trend.
So, to sum up this article, Nvidia’s stock is definitely trading way too high ,right now, from both a fundamental and technical analysis point of view, but that doesn’t mean it’s not still a buy. In fact, it’s very much a buy as long as this upward trend stays in place.
I would just advise you to enter in when the price has pulled back to preferably the 20 ma area/zone accompanied with a green/white buy candle. I would never get in long on a stock that is trading way above the 5 ma area on the Daily/8 hour chart like it is right now. It’s just a much more riskier trade to take when the price is trading in that area in my very humble opinion. Good luck with your trading and investments.
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