The stock chart of Nvidia Corp. shows that after the sustained rise to record territory, the stock is now technically more overbought than it has been in six months – but that doesn't mean the rally is over.
In fact, some chart watchers believe that the stock's recent breakout marks the start of the next phase of the uptrend, which could push the stock above the $600 level.
Katie Stockton, technical analyst at Fairlead Strategies, said the breakout was a “medium-term bullish development” as it broke a four-month trading range with a definite move higher.
“The outbreak continues [Nvidia’s] Long-term upside for an initial forecast of ~$602,” Stockton wrote in a recent note to clients.
Shares of semiconductor and artificial intelligence maker NVDA rose 2.1% in afternoon trading Wednesday, marking a fifth straight advance and a third straight record close. It is up 14% in the last five sessions, its best five-day performance since rising 14.7% in the five days ended June 14.
The rally comes as the company this week announced expanded partnerships with pharmaceutical companies and said a number of China-based electric vehicle makers had chosen Nvidia's centralized car computers to power their fleets.
Read: Nvidia tops Wall Street's list of 20 favorite stocks for 2024
On the stock's chart, the Relative Strength Index (RSI), a momentum indicator that compares the magnitude of recent gains with the magnitude of losses, rose to 72.03, according to FactSet data. Many chart watchers believe that RSI values above 70 are a sign of overbought conditions.
Nvidia's RSI is now at its highest level since the stock hit 74.77 on July 18.
Additionally, the stock is trading 2.5% above the upper limit of the Bollinger Band indicator ($529.39), which also suggests an overbought condition.
The Bollinger Bands indicator consists of three lines overlaid on the price chart. The center line is usually a 20-day moving average, and the upper and lower lines are two standard deviations from the center line. Read more about Bollinger Bands here.
However, keep in mind that while overbought indicators show Nvidia stock has risen more than history suggests would be normal, that doesn't mean the rally is over.
Some observers even interpret some overbought signs as a skill rather than a condition, with the view that the ability to become overbought is a sign of underlying strength.
And as Jessica Rabe, co-founder of DataTrek Research, wrote, although Nvidia stock is at an all-time high, “it has not yet reached a statistically significant overbought level.”
As the RSI chart above shows, some previous similar high readings may have caused brief pauses in the stock's rally, but they did not derail the uptrend.
The same applies to the last time the stock was as far above the upper Bollinger Bands line as it is now.
Rabe noted that dynamics is a powerful tool. Essentially, she said, she won't let an unusually large rally into overbought territory tempt her to bet on a pullback.
“We stick to our cardinal rule: 'Never short a new high,'” she wrote.