NVIDIA Corporation (NASDAQ: NVDA) was falling on Friday after forming a bearish triple top pattern at the new all-time high of $480.88, which has been driven by a boom in artificial intelligence stocks.
A double top pattern is a reversal indicator that shows a stock has reached a key resistance level, retraced lower, back tested the level as resistance and is likely to retrace again. It is possible the stock or fund may retest the level as resistance again, creating a triple top or even quadruple top pattern.
The formation is always identified after a security has reached a price and is at the top of an uptrend, whereas a bullish double bottom pattern is always found in a downtrend. A spike in volume confirms the double top pattern was recognized and subsequent increasing volume may indicate the stock will retrace into a downtrend.
The stock market also appears to be attempting to price in a hawkish tone from the Fed and that, paired with big tech earnings season, could cause volatility to increase.
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The Nvidia Chart: Nvidia formed its triple top pattern on July 14, July 18 and July 19, and on Thursday and Friday, the stock was reacting to the bearish pattern and falling lower. If the stock continues to descend, it may find support at its previous all-time high of $439.90, which was printed on June 20.
- The retracement from all-time highs was likely because Nvidia’s relative strength index (RSI) was trending above 70%, which put the stock into overbought territory. The retracement has been helping to lower that indicator, which is healthy.
- If Nvidia closes the trading session near its low-of-day, the stock will form a bearish Marubozu candlestick, which could indicate lower prices will come again on Monday. Bullish traders want to see the stock eventually form a bullish reversal candlestick, such as a doji or hammer candlestick, to indicate the potential local bottom has occurred and a rebound is on the horizon.
- Nvidia has resistance above at the all-time high and at the psychologically important $500 mark and support below at $429.90 and at $419.38.
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