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NIVIDIA trades bearish vertical count

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In recent weeks, we've seen some technology-related stocks achieve their bearish vertical counts from their point and figure charts and begin to firm up a bit. These observations should have some traders that have been short/put these stocks locking in some gains when the bearish counts are achieved. These can be important observations for option traders as time can eat away at an option's price if further downside in a put option isn't achieved.

Of course, bullish or bearish vertical counts can always be exceeded or not met, but trades that were set up with the thought that the stock might just achieve a bearish vertical count, should not be disregarded once the price objective is achieved.

NVIDIA Corporation Chart - $1 box

I'll use a bearish vertical count as a "reason" to lock in some gains from the bearish side, but when a stock is below trend and exhibiting poor relative strength, I become hesitant to try and trade the stock bullish. That type of strategy is perhaps used by traders that are very aggressive and like to "bottom feed." That can be a dangerous game where odds are against you, but if you hit one and find the bottom, the gains are nice.

I'd try and avoid "picking bottoms" as a trading strategy. An old bearish vertical count in NVIDIA (NVDA) of $49 was canceled out as there was a buy signal not long after that would have voided that vertical count, but the point is made that stocks can always exceed prior counts (bullish and bearish). If the relative strength of NVIDIA (NVDA) were strong or at least holding up relative to a broader market average like the S&P 500, then I'd be a little more willing to give the stock a shot from the bullish side.

Hang on a minute!

Perhaps I now understand that I'm catching a falling knife, but there may be reason for a "bottom feeder" to be thinking bullish in NVIDIA (NVDA). Take a look at the retracement bracket overlaid on the stock from the lows to the recent highs.

NVIDIA Corporation Chart - Daily Interval

Nice tie in from retracement at the $42 level can be found. As long as an AGGRESSIVE bulls understands that a stop should be placed under the $42 level and doesn't mind taking that type of heat, then NVIDIA looks "attractive." One way to help control your risk is to initiate just partial bullish positions to begin with, then add once some levels of retracement are broken to the upside.

Interesting correlation between the bearish vertical count of $42 and another tool we have in the toolbox with retracement. Subscribers are really working hard and thinking outside the box. Today's trade at $42 and vertical count was pointed out by subscriber as we had mentioned bearish count in past. That's some good hard work. Now perhaps add the retracement to make a young bull's case, but understands how levels can come into play.

Jeff Bailey
Senior Market Technician
Option Investor

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