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Did You Miss Nvidia's Big Breakout Last Year? Don't Miss The Next One

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Hindsight is 20/20, as the saying goes.

Looking back at last year's winners, investors should have snapped up shares of Nvidia ( NVDA ) in March and held them through most of the year.

The stock has since taken a breather to digest a more than 250% gain, but has broken out again in May 2017 with a powerful move past a 121.02 entry in a three-month cup-like base that featured no handle .

[ibd-display-video id=2382612 width=50 float=left autostart=true]But those who've studied CAN SLIM investing principles and honed their chart-reading skills through plenty of practice need not look back and wish they had bought the stock. They would have noticed IBD's coverage of Nvidia as it was basing ahead of the March 2016 breakout. For instance, one IBD article stated on March 14, 2016, that Nvidia had set up a cup-with-handle base with a 33.16 buy point.

The potential breakout was also discussed in a March 10, 2016, column and in other prior articles and IBD videos before the handle formed, which shaved the the buy point down to 33.16 from 34.04.

Let's take a closer look at the stock's daily and weekly chart action leading up to the breakout. The specialist in data-processing chips for video-game consoles, data centers, self-driving-car technology and artificial intelligence started building the base on Dec. 30, 2015. It corrected as much as 27% from the left peak of 33.94 to the bottom of the base at 24.75.

The base wasn't as smooth as you'd like to see, but that's not surprising given chip stocks' tendency to be volatile.

On a weekly chart, up and down weeks in heavy volume were roughly even along the bottom.

Turnover then swelled as Nvidia formed the right side of the base, a bullish sign.

Shares began drifting slightly lower in early March in well-below-average trade, setting up a new buy point of 33.16, a dime above the high of the handle. When Nvidia cleared the entry on March 16, volume was 6% lower than normal (1) .

The stock eased slightly in the next session before retaking the entry on March 18 in turnover 40% higher than usual (2) . From there, it didn't look back. Shares rode the 50-day moving average line higher before peaking Dec. 28.

IBD'S TAKE:Nvidia is still one of the top-rated stocks in the Electronics-Semiconductor Fabless group. Find out which other stocks earn high marks in the group at IBD Stock Checkup .

The stock didn't show signs of slowing down until late last year, when a 10-session advance signaled climax-run-like action, as discussed in this Stock Market Today column .

During the March to December run-up, however, traders had a few extra chances to buy.

The stock remained in buy range for nearly two weeks from the actual breakout, as post-breakout columns noted. But by the week ended April 1, Nvidia stock was extended from the entry.

Still, investors who continued monitoring the stock were rewarded with additional follow-on buy points and another base, where they could add a smaller amount of shares or establish a new position. In May 2016, Nvidia pulled back to and rebounded off the 10-week moving average. In the week ended July 8, it cleared a four-weeks-tight pattern at 47.64. And in September, shares cleared a third-stage flat base with a 63.60 buy point.

Later-stage bases carry a higher risk of failure. Nvidia's third-stage base didn't fail, but the stock is now consolidating after the nine-month rally. At this point, it's best to wait and see if it will go on to form a new pattern and entry point.

( This column originally published on Jan. 20, 2017. )

RELATED:

Investing To Win: How IBD Covered Nvidia Before Its March 2016 Breakout

The Basics I: How To Analyze A Stock's Cup With Handle

The Basics II: Why Good Offense In The Market Means Showing Great Defensive Skills

The Basics III: When Does A Deep Cup With Handle Succeed?

Advanced Chart Analysis: Why Do Some Great Stocks Etch A Cup Without Handle?

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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