Nvidia Corp.’s recent surge into record territory has pushed its stock into the most overbought condition in six months, according to its stock chart. However, some market analysts remain optimistic, viewing the recent breakout as the commencement of the next phase of the upward trend, potentially propelling the stock beyond the $600 level.
Katie Stockton, a technical analyst at Fairlead Strategies, deems the breakout a “bullish medium-term development,” characterizing it as the resolution of a four-month trading range with a decisive upward movement. Stockton conveyed in a recent note to clients that the breakout signals a continuation of Nvidia’s long-term uptrend, with an initial projection reaching around $602.
Nvidia’s stock (NVDA) rose 2.1% in afternoon trading on Wednesday, marking its fifth consecutive gain and a third consecutive record close. Over the past five sessions, the stock has soared by 14%, representing its most robust five-day performance since mid-June.
This notable rally aligns with Nvidia’s recent announcements of expanded partnerships with drug-discovery companies and collaborations with several China-based electric-vehicle makers that have chosen Nvidia’s centralized car computer to power their fleets.
Examining the stock’s chart, the Relative Strength Index (RSI), a momentum indicator, has climbed to 72.03, a level considered by many as indicative of overbought conditions, especially when readings surpass 70. Similarly, the stock is trading 2.5% above the top line of the Bollinger Bands indicator, another signal of potential overbought conditions.
Despite these indicators suggesting a potential pullback, some observers interpret overbought conditions as a sign of underlying strength rather than an imminent downturn. Jessica Rabe, co-founder of DataTrek Research, emphasized that while Nvidia’s stock is at an all-time high, it has yet to reach statistically significant overbought levels.
The analysis of previous instances with high RSI readings and the stock trading above the top Bollinger Bands line indicates that while brief pauses occurred, they did not derail the overall uptrend.
Rabe highlighted the power of momentum and reiterated the principle of “never short a new high,” suggesting that an unusually large rally into overbought territory should not tempt investors into betting on an immediate pullback. Despite the overbought signals, analysts remain cautious about prematurely declaring the end of Nvidia’s impressive rally.
