2 Reasons To Buy The Dip On This Chip Stock

NVDA historically performs well after sell-offs

Managing Editor
Oct 23, 2018 at 2:20 PM
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The shares of Nvidia Corporation (NASDAQ:NVDA) are taking part in the broad market and semiconductor sell-off today, down 4.2% at last check to trade at $221.41. Also pressuring NVDA lower is a price-target cut from UBS to $260 from $285. However, there is silver lining for the chip stock in the form of two bullish signals that just flashed.

NVDA is now within one standard deviation of its 320-day moving average, after a lengthy stretch above this trendline. In the last two years, there has been one other signal of this kind, after which the shares were up a whopping 25.81% a month after, per data from Schaeffer's Senior Quantitative Analyst Rocky White. 

Daily Stock Chart NVDA

Given the equity's current perch, a similar rebound would have the equity trading right near the $279 level. What's more, NVDA sports 14-day Relative Strength Index (RSI) of 31, on the cusp of oversold territory, suggesting a short-term bounce may be in the cards.

Nvidia is also a good stock to own after a broad market sell-off. According to White, following S&P 500 drops of 3% or more in one day, NVDA gained 2.4% in the subsequent two weeks, on average, and was higher 78% of the time. 

In the options pits, short-term speculators are more put-heavy than usual, per the equity's Schaeffer's put/call open interest ratio (SOIR) of 1.10 -- in the 80th annual percentile. Meanwhile, it appears to be a more attractive time to sell premium on short-term NVDA options. The 30-day at-the-money implied volatility was last seen at 59.4% -- in the 99th annual percentile. In other words, near-term options are pricing in elevated volatility expectations at the moment.

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