Nvidia is down more than 5 percent from its recent high, but the charts suggest the hot chip stock's rally is about to resume.
According to Todd Gordon, founder of TradingAnalysis.com, Nvidia is one of the few stocks in the market right now worth a buy. He pointed to two bullish technical indicators that lead him to think the stock is set for a breakout.
- The first of these indicators is a "divergence" that Gordon sees between Nvidia and the Nasdaq 100-tracking ETF (QQQ), where Nvidia has recaptured those 2018 highs whereas the Nasdaq 100 has not.
- After Nvidia sold off post-earnings, it has managed to come back and break through what Gordon believes is resistance, leading him to think that Nvidia could soon rally back to the $260 level.
- Furthermore, Gordon pointed to the stock's implied volatility, or price of options. Since the company reported earnings, the price of buying puts and calls has decreased dramatically, making the stock even more attractive.
The trade: Gordon suggested buying the June 1 weekly 250/255 call spread for $1.65, or $165 per options contract.
Bottom line: Gordon expects Nvidia shares to rally as high as $255 by Friday, June 1 – or roughly 4 percent in about two weeks.