Time to sell Nvidia? How to trade stocks that have 'gone parabolic'

Published Mon, Mar 11 202412:30 PM EDT

When stocks are in steep uptrends, it can difficult be difficult to determine when a meaningful corrective move is going to take place. We all want to capture as much of the uptrend as possible, especially when momentum is strong, but there is risk inherent to steep uptrends, which makes it important to have a "sell discipline" for profit taking. We have seen many steep uptrends take hold in this momentum-driven tape, especially in some of the market's largest stocks like Microsoft, Nvidia, Amazon, Meta, Berkshire Hathaway, Eli Lilly, Broadcom and JPMorgan Chase. Therefore, it is important to have a plan for how to deal with stocks that have "gone parabolic," meaning the momentum behind their uptrends has accelerated. A 20-day moving average (MA) can be helpful as a gauge of short-term momentum, in general. It is especially useful in helping us stay on the right side of steep uptrends. Two examples of steep uptrends are Meta (Meta) and Nvidia (NVDA) , both of which are pictured below. Quite simply, when the 20-day MA is pointing higher, as it is currently for NVDA and META, it supports holding existing exposure. When the 20-day MA turns lower after having pointed higher for a long period of time, it is a sign that momentum is waning and that the stock is due for a significant pullback. Looking back, for both NVDA and META, the 20-day MA rolled over in early August 2023, which preceded intermediate-term corrective phases in the third quarter of last year. We include the Ichimoku cloud model on the charts because it can be a good gauge of initial downside risk in steep uptrends. The cloud worked particularly well on the chart of META during its corrective phase, and it resulted in initial support discovery for NVDA in early August at the onset of its correction. The 50-day MA is another helpful way to gauge initial support in uptrending stocks. As a general rule, we advise reducing partial exposure when the 20-day MAs roll over after steep upmoves. The percentage reduction should keep in mind how the stock fits into an overall portfolio. A breakdown below support from the cloud model and/or 50-day MA can be a catalyst to sell stocks, often with the intention of revisiting them once they become oversold again from an intermediate-term perspective. —Katie Stockton with Will Tamplin Access research from Fairlead Strategies for free here . DISCLOSURES: THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL'S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. 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