Is Nvidia the New Qualcomm? Charts Say Yes

 | Dec 29, 2016 | 7:30 AM EST
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While most investors, analysts and industry pundits will tell you "no" to the question posed in the headline to this piece, the answer may be discernible without third-party input. Let's look at the initial reason our DSE (decision support engine) just signaled a huge sell-signal warning in Nvidia (NVDA) , which noted short-seller Andrew Left on Wednesday said has run too far.

Chart One is the monthly bar chart of Qualcomm (QCOM) , where we've zoomed in on the blow-off thrust into the early 2000 peak. During 1999 alone, the share price rose from around $3 to around $73. QCOM gapped to $79 in early January, then reversed to close the month around $50 after testing $42. It never saw the $70s again until 2014. That rise, highlighted in the blue column, is known as a parabolic rally; these always break and return to the origin of the parabola, if not below it.

Qualcomm (QCOM) Source: TradeNavigator

Notice the price thrust above the olive/gold band, which is the 2 standard deviation band (sdb), containing 95% of normality. At the peak tick back then, prices actually reached the 5 sdb, containing 99.9% of normality. This statistical extreme informs us that there is no chance that prices can maintain this level and a dynamic reversal should be imminent. It was! By early 2002, the parabola's origin had been reached -- the green zone.

Chart Two is the monthly bar chart of NVDA. It shows the same parabolic form, since the beginning of this year, as QCOM did in 1999.

Nvidia (NVDA) Source: TradeNavigator

Notice how price is thrusting above the olive/gold band here, too. So far, the top tick around $120 reached above the 3 sdb, containing 99.7% of normality. To reach the 5 sdb, NVDA would need to spike toward $160. Even the 4 sdb would require a spike toward $140; neither of these can be ruled out at present. However, higher highs are neither required nor anticipated, as you can see the monthly stochastics (lower pane in chart two) already have crossed down, generating a long-term sell signal of their own.

History is very clear by using pattern recognition algorithms to seek similar "if/then" scenarios, as our DSE constantly does. "If" a stock's price behavior creates a parabolic rise, "then" a crash to the pattern's origin is the highest probability outcome, regardless of how high prices get. Eventually, the forecast is fulfilled.

In QCOM's case, it took around 15 months for prices to crash back to the green zone, which didn't mark the final low. That took 16 additional months, into August 2002.

If NVDA has a similar timing analogue, its price should fall sharply for the next 24 to 30 months, ending in the green zone, which surrounds $30 +/-4, which would wipe 75% off the test of $120 this week. While this seems impossible, especially for those caught in the buying mania of these past few months, QCOM crashed 88% back then, which no one was prepared for, either.

Harry Truman said, "The only thing new in the world is the history you haven't read." Well, at least you know some history you can use -- or not -- in considering what to do about a stock that has risen in a recognizable pattern with a highly predictable outcome.

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