Shares of NVIDIA Corporation (NASDAQ: NVDA) surged 9% Friday on a huge spike in volume, putting the stock back in the bulls' favor and setting up a follow-through buying trade for active investors.
On Thursday after the close, the three-dimensional graphics processor manufacturer reported better-than-expected earnings for its fiscal second quarter and upped its guidance.
Non-GAAP earnings per diluted share rose 30% year over year to $0.30, above the consensus estimate of $0.20. Revenues increased 13% to $1.1 billion, matching analysts' estimates.
All in all, these numbers were nothing to snicker at, and in reaction to the outlook some Wall Street analysts issued positive comments, further fueling the rally.
A number of analysts currently consider the stock to be fully valued. But just as a day trader has a different time frame than a growth investor, so too does a swing trader have a different time frame than a fundamental-based value investor. And there is a big distinction to be made between an analyst's 6-12-month outlook and the technical picture on a stock's chart.
Looking at NVDA's weekly chart, we have two distinct trendlines to focus on -- the support line from late 2008 and the upper diagonal line dating back to October 2007 -- which help us better define our risk.
Shares found solid support in early 2013 and again in August of last year. This support ultimately helped the stock coil up and spring higher, finally breaking past the 2007 diagonal resistance line in February.
Since breaking past this key multiyear resistance line, NVDA has spent most of its time in a constructive consolidation pattern, within which it remains even after Friday's big-volume, post-earnings rally. Key, however, is the fact that the stock is consolidating above its former diagonal resistance line, which puts the odds in favor of another push higher.
On the daily chart below, note that NVDA also respects its 200-day simple moving average, which most recently acted as firm support in late July and early August.
Friday's post-earnings rally took place on an up gap and shares never looked back intraday. The stock has average daily trading volume of around 7 million shares, but more than 22 million shares changed hands on Friday.
So, if we consider the constructive longer-term chart, and the fact that Friday's rally pushed the stock off its 200-day moving average and came on an up gap and on massive volume, the long side looks compelling over the next few weeks.
Recommended Trade Setup:
-- Buy NVDA below $19
-- Set stop-loss at $18.25
-- Set initial price target at $20.50 for a potential 8% gain in 2-6 weeks
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