Nvidia's warning is just the tip of the iceberg for sinking chips, says technician

A cloud is hovering over the chip space that some say is about to burst.

Nvidia shares cratered 14 percent Monday after the chipmaker cut its guidance, citing weakness in China. The plunge dragged down the entire chip space with the SMH semiconductor ETF falling 2 percent on the day.

Oppenheimer technical analyst Ari Wald sees no reprieve just yet.

"You have some [chip stocks] that are starting to turn up while some are still basing and have more work to do," he said Monday on CNBC's "Trading Nation." "We would put Nvidia in the latter. It still needs to base and there's more work that's needed."

Wald is looking for Nvidia to retest its low of around $125 that it hit near the start of the year. That, to Wald, is when Nvidia will base and start to move up. It closed on Monday at $138.01 and was 1 percent lower in Tuesday's premarket.

"What we want to see is the stock start to move sideways while its 200-day moving average, which is still north of the $200 catches down to price," Oppenheimer said. The stock's 200-day moving average currently sits at $222, much higher than the $125 level he's eyeing.

"So I think it's still early here, too late to bet against it, too late to bet on it," he said.

Chantico Global CEO Gina Sanchez also sees fundamental headwinds that could prevent an Nvidia rally in the shorter term. Not only does Sanchez believe the drop in cryptocurrencies hurt the chipmaker's revenues, but the slowdown in cloud computing could also hit the stock.

"I think the general slowdown in China and the slowdown in cloud computing is actually going to be a bit of a cloud over the industry," she said on "Trading Nation."

However, Sanchez said the company's efforts in the autonomous driving industry could be a boon for Nvidia.

Despite Monday's plunge, shares of Nvidia are still up more than 3 percent this year.

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Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Michael Santoli

Michael Santoli joined CNBC in October 2015 as a Senior Markets Commentator, based at the network's Global Headquarters in Englewood Cliffs, N.J.  Santoli brings his extensive markets expertise to CNBC's Business Day programming, with a regular appearance on CNBC's “Closing Bell (M-F, 3PM-5PM ET).   In addition, he contributes to CNBCand CNBC PRO, writing regular articles and creating original digital videos.

Previously, Santoli was a Senior Columnist at Yahoo Finance, where he wrote analysis and commentary on the stock market, corporate news and the economy. He also appeared on Yahoo Finance video programs, where he offered insights on the most important business stories of the day, and was a regular contributor to CNBC and other networks.

Follow Michael Santoli on Twitter @michaelsantoli

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