EDITOR'S NOTE: Sam Collins will return on Feb. 21
The king of momentum, Nvidia Corporation (NASDAQ: NVDA ), has been brought low following last week's earnings announcement. The earnings beat was good for an up-gap that lasted all of one nanosecond before sellers rushed in. Since then, NVDA stock has fallen some 10% amid heavy volume.
Is this the beginning of the end of Nvidia's bull market? Or merely a bout of well-deserved profit-taking following a rally for the ages?
On the bullish front, NVDA stock's recent descent has inflicted little, if any, damage to its overall uptrend. For all its fury, the three-day drop has merely returned the stock to its rising 50-day moving average, and all prior support levels remain intact.
On the bearish front, volume addicts can certainly point out the double dose of distribution accompanying the drop. These high-volume down days could certainly continue to weigh on the stock in the near term.
And, yes, NVDA did see a bit of slowing momentum during its last pivot high formation.
But, really, until we see more significant price deterioration, buyers deserve the benefit of the doubt.
Embrace the Odds With This NVDA Stock Trade
If you think this dip is a buy and stock is your weapon of choice, then consider buying shares if Nvidia can take out Tuesday's high of $110.15. Those willing to dabble with derivatives could sell the Mar $100 put for around $1.27.
If the stock sits above $100 at expiration, you'll capture the max reward of $1.27 when the option expires worthless. If you're a willing buyer around the $99 mark, then you could ride to expiration and allow assignment if the put sits in-the-money. Your cost basis will be $98.73.
Otherwise, I suggest bailing if NVDA stock falls below prior support which, incidentally, also sits at $99.
At the time of this writing, Tyler Craig had no positions in any of the aforementioned securities.
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