How to Trade a Dead-Cat Bounce in Nvidia Stock

• I am executing a short-term, dead-cat bounce trade in Nvidia (NVDA), dollar-cost averaging over 10 sessions.
• My approach leverages technical signals including the 20-day turtle channel, moving averages, and Barchart’s Trend Seeker.
• NVDA's fundamentals remain intact in the short-term despite recent negative news.
• Short interest is low at 1.25% of float, suggesting limited bearish conviction in NVDA currently.

The Set Up 

Today’s post about Nvidia (NVDA) will be different than my typical Chart of the Day. In most of my articles, I do a lot of research and even tell you what other financial analysts and columnist have published. The problem with Nvidia is that most of them are sitting on the sidelines like deer in the headlights, frozen and not knowing what to recommend.

The phrase “buy when others are selling” is most famously attributed to J. Paul Getty.  

That’s my advice today. I am normally a long-term investor who finds and invests in fundamentally sound companies that are having increases in revenue, earnings, and cash flow that are currently experiencing positive price momentum. The old “Trust but Verify” way of investing. That’s not what this is. This is a very short-term trading opportunity – a dead-cat bounce opportunity that comes along every once in a while.

I am not advising you on what you should do, but I will share with you what I am doing, and you can decide if I’m being astute or carelessly crazy.

How I’m Trading Nvidia 

I am going to commit a few hundred thousands of dollars and divide it into 10 purchases that I will use to dollar-cost average into this opportunity. I made my first purchase on Thursday, Nov. 12 at $169.2850 and will make daily purchases over the next 9 trading sessions.

I do not know where the bottom will be, but my chart will tell me when we’ve experienced the bottom of this dead-cat bounce.

My major assumptions are that Nvidia has 42,000 employees and a ton of back orders to be filled. This news involves Jensen Huang, two other employees, and an alleged Chinese spy.  

In the short run, the other 41,997 employees will keep coming to work and fulfill the backlog just as they would have before this happened. The company will not go down the tubes anytime soon. Another assumption is that the vultures will not be swooping in on a dead carcass as is evidenced by a very low short interest of only 1.25% of the float

My chart below shows the price, the Trend Seeker, 20-day moving average and 20 day Hi/Lo turtle channel.

The Bottom Line on Nvidia 

As I said previously, I will dollar-cost average into my position in Nvidia over 10 trading sessions. I will monitor until I see the bottom has been reached using my 20-day turtle channel as my indicator. I will then place a stop loss at that level. I will change my stop loss when I see the price cross the 20-day moving average and will move to my third stop loss when I get the Trend Seeker “Buy” signal.  

After that, I will use the Trend Seeker to ride this trading opportunity as long as I can while at the same time minimizing my downside risk using upward moving stop losses.

Again, this is not a recommendation for you. I’m just sharing with you what I will do and time will tell if I’m an idiot.

Additional disclosure: The Barchart Chart of the Day highlights stocks that are experiencing exceptional current price appreciation. They are not intended to be buy recommendations as these stocks are extremely volatile and speculative. Should you decide to add one of these stocks to your investment portfolio, it is highly suggested you follow a predetermined diversification and moving stop loss discipline that is consistent with your personal investment risk tolerance.

On the date of publication, Jim Van Meerten had a position in: NVDA . All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.