Anatomy of a Bull Trap. Take a look at Nvidia (NVDA) (December 14, 2017)
NVDA
Let’s look at NVIDIA ( NASDAQ: NVDA ). This is what I would call an anatomy of a bull trap; at least that is the way I feel; I could be wrong but this is how I am playing it. This stock, you see it has gone up forever, right? After it broke down here, it tested the 50 and then it broke again. You can see these two volume spikes here and here. That is institutional distribution. The stock falls down to 180.00 and then rebounds.
For the ‘NVIDIAans’, you look at this as an awesome opportunity. You are going to buy this stock and it is going to go straight up to Pluto; you finally got the buy entry point that you were looking for. But what you weren’t thinking about is there are a lot of folks that bought a little bit below 220.00 who would like their money back. And so you have got all of these unhappy campers here and even down here frankly but we will just leave it at 200.00; all these unhappy campers that were buying around 200.00 held the stock and then it has fallen this low. They see this little rebound and they don’t feel that great because they are still upside down in the trade; they want their money back. So they are sitting there, they are waiting; you can feel them. They are waiting. Some of them are selling here, “I am close enough, I am getting my money.” Then more of them here, “Uh-oh, that’s the end of this. Oh, maybe it’s not.” Okay, well maybe it is.”
And so you have got this supply up here above 200 that slowly is saying, “I think I will be supply at 190.00. I think that is a better deal for me.” Then the stock does this: It keeps falling and then you have got more buyers now that come in and say, “Well, this is pretty extended here but I am going to get it up here; I think it’s good.” This is where we are right now. But here is what we are not thinking about: Patterns matter this trading box is kind of like this one, which is kind of like this one, kind of like that one, and certainly kind of like this one. We can go on and on and on just drawing boxes around the clusters of prices. This is a lower high.
Now, institutions are not buying this stock. We know they are not buying it because the stock is below the 50-day moving average and it is not going back above it. We are not seeing these big, massive green volume spikes like we did here. Instead, the stock is kind of puttering around on lower than average volume. I am not saying this is a short, although I have sold some 200.00 calls against this and I am pretty comfortable that those are going to expire worthless, though I won’t be sticking around that long. But I wouldn’t short this stock right here because so far it is printing a higher low than this one. It is inside the lower Bollinger Band as opposed to outside. So not only a higher nominal low or price low versus this price. But it is also relative to where it stands in the Bollinger Bands. This is outside the lower band; this is inside. This is actually a bullish signal.
If you buy this you will probably make a little money on it tomorrow but it is not a good buying opportunity to sit here and ride this thing to 200.00, there is just too much resistance here, way too much resistance. It is not my trade but if you want to buy a little bit tomorrow because you are a dip buyer and that is what you do, then fine. If it moves up 2 or 3 percent take your profit. But other than that I think you have got to respect this trend break. Don’t let NVIDIA ( NASDAQ: NVDA ) suck you in, it will spit you out, typically at a lower level.
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