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Asset Watch

Stay nimble with NVIDIA?

 

Thursday, May 11, 2023

With Big Tech accounting for most of the S&P 500’s year-to-date (YTD) gains, 2022’s laggards have become 2023’s leaders. Famed hedge fund manager Stanley Druckenmiller is expecting big things from artificial intelligence, having recently touted the possibilities on May 9. He said:
“I think the AI thing is very very real and could be every bit impactful as the internet. It could be a beautiful opportunity in a hard landing, just like 2001 and 2002.”
More importantly, he added:
“It’s not even clear to me if we had a really bad recession that NVIDIA would even go down. It’s kind of a stupid statement given the multiple on it, but if they bought staples historically in recessions, why wouldn’t they buy a company that’s obviously going to grow very rapidly?”

While his endorsement was music to the bulls’ ears, should you tread carefully in the short term?

 

The momentum play is to own the stock if it holds above its 20-day moving average. Since the New Year, higher highs and higher lows have made the strategy immensely profitable. On the other hand, NVIDIA is diverging on the daily chart, as its RSI has made lower highs. The last two times this happened, it preceded drawdowns of 26% and 11%.

 

So, should you stick to the 20-day MA strategy, or is weakening momentum enough of a reason to stay on the side lines?


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