Highflying movers like Nvidia stock don't climb forever.
While dramatically rising stock patterns can turbocharge a portfolio, such moves could indicate a stock is set to slow down, correcting over time or becoming extended.
"I always used an example of an airplane in an air show that skims along the runway at just a few feet off the ground and then turns straight up," trading pro David Ryan told Investor's Business Daily on the "Investing with IBD" podcast. "At some point, it starts to stall, and that's what Nvidia stock did."
Ryan says Nvidia has gotten the most focus from market participants. However, in early June, Nvidia stock saw three days in a row of declines, accompanied by heavy trading volume. "That's something that has not happened since the stock started its move all the way back since 47," he said, referencing Nvidia's market price in January this year.
Nvidia stock showed signs of becoming extended after rising quickly within a few weeks, a move that trading pro David Ryan called "very climactic." The stock entered a 53-day consolidation period that began in early March, reaching a breakaway point in May.
Nvidia Stock Could Take A Break
Earlier, Nvidia stock had formed a 31-day flat base in December last year before climbing.
Dramatic climbs indicate that a stock needs to take a break at some point, Ryan said. "It has to either go sideways for a long period of time, or correct and let the earnings keep on coming through."
"There's very few stocks that are going to sit there and have a really tight pennant formation and then take off and go again," he added. "It does happen, but it's very, very rare when that occurs."
Audio Version Of Podcast Episode
Nvidia stock is currently ranked No. 1 in the Electronics-Semiconductor group, according to IBD Research, and still holds a Composite Rating of 99. The stock remains on investors radar for making graphics cards and processors that are particularly adapted to handling the calculations required by generative AI technology.
Ryan says Nvidia stock's reversal shows a stock that may be getting ahead of itself. "When you draw longer-term trend lines and a stock starts breaking them to the upside, time is starting to run out and you should start acting accordingly," he said.
Tap here to learn how to stay ahead of your stocks.
Follow Mike Juang on X at @mikejuangnews and on Threads at @namedvillage.
