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Nvidia Rout Takes Breather as Traders Scour Charts for Support

(Bloomberg) -- Nvidia Corp. shares showed signs of steadying after a $430 billion selloff sent traders searching for signals as to where the bottom may be.

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The stock rose as much as 6.3% on Tuesday, set to snap a three-day rout that had pushed it into a technical correction – when a stock drops 10% or more from a recent peak — for the first time since April.

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While the rout displayed some concerning signals, analysts are focusing on the stock’s longer-term trend — which, for Ari Wald, head of technical analysis at Oppenheimer, remains strong: the shares are still trading well above their 50-day moving average around $101 and 100-day moving average at $92.

“Typically major tops are a process, with several rounds of buying and selling and then price momentum creeps in and there’s a failure to hold key levels. We haven’t seen anything like that yet,” he said in an interview. “This is just how Nvidia trades.”

Among Nvidia selloffs of this scale, the stock tends to rebound on the fourth day — which would be today — about 63% of the time, according to Daniel O’Regan, a managing director of equity trading at Mizuho Securities.

While technical analysis for insight in historic trading patterns isn’t precise, it can provide a useful roadmap for investors.

Nvidia has soared this year amid unrelenting demand for its chips that dominate the market for artificial intelligence computing. The latest leg of the advance saw the stock rise 43% from its May 22 earnings report and stock split announcement to the June 18 peak when it closed with a market value of $3.34 trillion, topping Microsoft Corp. Nvidia is still up 152% this year.

High options activity was often cited as one of the main reasons for the stock’s climb: market makers in the contracts had to constantly hedge their positions by trading the stock as it moved higher in what is called a gamma squeeze. That pressure may be easing following the correction.

Buff Dormeier, chief technical analyst at Kingsview Partners, sees short-term support around the $115 level. That’s near a key Fibonacci retracement level, a tool used by technical analysts to identify support or resistance lines for stocks and other assets. The 38.2% retracement from the stock’s intraday low in April to its record high last week is about 2% below Monday’s closing price.

Analysts such as Dormeier believe the long-term uptrend remains intact for Nvidia, but they’re keeping an eye on the $100 level.

“For a stock in an uptrend like Nvidia, breaching that first level of support wouldn’t be a concern,” said Bruce Zaro, chief technical strategist at Granite Wealth Management. A drop below $100, however, would be, he said.

“That may not have long-term implications, but it would signal that you should be patient, especially in a period where the market is likely to be volatile and have a downward bias as we await the election and the Fed weighing in on rates.”

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--With assistance from Matt Turner and Subrat Patnaik.

(Updates to afternoon trading.)

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