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LivestreamMenuNvidia , the poster child of the AI trade, will report earnings Wednesday night. The fundamentals and the charts suggest investors should proceed with caution. For a variety of reasons, sentiment around the AI buildout beneficiaries has started to sour. Pushback on data centers has become a key topic heading into the midterms. Memory bottlenecks are also driving up the cost for each additional gigawatt of compute. Plus, declining costs for each unit of AI compute, known as tokens, are calling into question the ability of proprietary AI labs, namely OpenAI and Anthropic, to make good on their massive financial obligations. The result is that Nvidia went from registering its highest close since mid-May on Aug. 13 to a seven-day losing streak, including Monday’s decline. It’s fallen over 7% in this rough patch, underperforming the tech-heavy Nasdaq’s roughly 3% pullback. From a technical point of view, Nvidia’s stock is now hovering near several key points of interest. That makes the upcoming earnings release all the more important from a sentiment and near-term trading perspective. The market will be paying close attention, of course. Nvidia is the most valuable company in the world and the ringleader of the AI trade. As the company invests in other members of the AI ecosystem and helps arrange financing for data center construction, it’s been dubbed the “central bank of AI.” That makes CEO Jensen Huang something of the AI Fed chair. When Huang talks, we, and the rest of the market, listen. Nvidia’s stock continues to look cheap, at less than 17 times fiscal 2028 (ending January 2028) earnings estimates. That is attractive, and we remain long-term positive on the name. However, the downward momentum now taking hold — along with the broader AI trade concerns noted above — tells us that caution is warranted. Let’s take a closer look at three charts that help explain why. Key support levels This is a 12-month stock chart for Nvidia, with its daily price action shown in blue. The first level of note is $207, only a few bucks from the current stock price. That’s where we run into the 50-day moving average (red line) — a widely followed technical indicator to gauge the overall trend of a stock. Given that we are currently above it, we are looking for this level to act as support, meaning we would expect buyers to step in here and soak up the excess supply, resulting in a bottoming of the stock and a rebound to the upside. However, should that support not materialize, we’re likely looking for a move below the $200 level — to around the $195 region. There, we find an intact uptrend going back to the March low. More important, though, that level is also where we find the 200-day moving average (yellow line). While traders generally would be looking at the 50-day and 200-day moving averages as places to buy the stock, Nvidia’s looming earnings report changes the calculus a bit. As fundamental investors first and foremost, we would argue that once Nvidia reports Wednesday night, nobody will be concerned with these levels. Instead, they will be rushing to either buy or sell the stock based on the results, guidance, and management commentary. We certainly won’t be calling them out as a reason to be bullish or bearish on the release; we lean entirely on the results and commentary for those calls. To put a finer point on it, let’s consider a world in which Nvidia’s guidance for the current quarter underwhelmed versus expectations. These support levels on the chart would have a tough time bearing the weight of a light outlook. MACD – a momentum indicator A quick look at Nvidia’s daily stock chart tells a surface-level story of a stock running out of momentum. But a more quantitative view of that can be seen by looking at what technical investors refer to as the “MACD,” which stands for “Moving Average Convergence Divergence.” It tracks several exponential moving averages, in hopes of revealing information about future momentum/direction. Here’s what it looks like for Nvidia on a 12-month basis: Now let’s break down the components of the chart and how the MACD works. The blue line is the actual MACD and is calculated by subtracting the 26-period exponential moving average (EMA) from the 12-period EMA. The red line is called the “signal” line and is simply the 9-period EMA. The other component to note is the 0-line, which simply indicates whether the MACD is positive or negative, and by how much. The early indication comes when the blue MACD line crosses through the red signal line: The MACD crossing above the signal line, while occurring below the 0-line, is bullish. The MACD crossing below the signal line, while occurring above the 0-line, is bearish. The confirmation occurs when the MACD crosses through the 0-line: A cross of the MACD from below the 0-line to above would confirm that momentum is now to the upside (bullish) A cross of the MACD from above the 0-line to below would confirm that momentum is now to the downside (bearish) Looking at Nvidia’s MACD, we see that the MACD has now crossed from above the signal line to below it, though it currently remains above the 0-line. So, we’re looking at a bearish posture, but are still waiting on confirmation, raising the stakes for the current technical setup. Relative strength index Another momentum indicator is the RSI, or relative strength index. This indicator helps technicians gauge whether a stock is overbought or oversold — similar to how we at the Investing Club look to the S & P Short Range Oscillator to help us figure out conditions in the broader market. The RSI can be used to zoom in on individual names. Below is where Nvidia currently stands (blue is the RSI, the red bars are daily trading volume): What we see with Nvidia is an RSI in the mid-40s. This means we’re far from oversold — anything below 30 is oversold; above 70 signals overbought. While volume has been a bit lower in recent days, it’s not enough to argue against the move lower. So, this suggests that there’s still room for Nvidia to drop further before anyone waiting for oversold conditions feels motivated to step in. The bottom line Nvidia is in a tough spot heading into earnings. The fundamentals around the data center trade, specifically the rising political pushback, have us feeling more cautious than we were even just a week earlier. And as we look at the charts, we see a stock ready to test some key levels. Of course, we hope that Nvidia on Wednesday night can offer some reasons for us to grow more optimistic. For now, though, we see a flashing yellow light. (Jim Cramer’s Charitable Trust is long NVDA. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.Read More
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