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Nvidia has been one of the biggest winners in the stock market. In this article we will look into the characteristics of the stock so that you can also spot the next Nvidia.
First let me just show you how much Nvidia has gone up.
That is an impressive 1000% return in about 2 years!
Well this is the kind of stock that a fund manager wants and needs. If they put in $50 million into the stock, it will be worth $500 million today.
For the ordinary investor, a $500k position will be worth $5 Million in 2 years!
Mighty impressive for anyone right?
So what is the secret sauce for Nvidia to move up so much? What characteristic did it have? As you read this article, realize that you are learning how to spot stocks that will be the next big winner in the stock market. So pay attention...read and listen carefully as there will be plenty of new Nvidias around in the future.
Every year there will be a Jensen Huang and friends who will come up with a brilliant product or service. Every year there will be someone who will create a successful business that grows exponentially.
You will not only find these companies in the US stock market. In fact, you can find plenty of opportunities in stock markets around the world as there will be a brilliant entrepreneur in every country.
Whether it is a tech company, a biotech company, a mining company or whatever industry it is in, there will always be a big winner. The characteristics of a winning stock is always the same and I have boiled them down to 5.
I shall reveal the 5 reasons or secrets why NVDA went up so much.
If you wish to find the next NVDA, be sure to read this again and again and make it into a template for your own investment success.
The very first ingredient that made this stock into a super big winner is the fact that it has been in an uptrend.
Remember the famous Wall Street saying?
"The trend is your friend".
I think most people know about this but not many people take it seriously. The lesson to remember here is this. If you wish to find the next 1000% winner, you have to choose your stocks among the ones that are making an uptrend like NVDA.
What is the definition of an uptrend?
Well if you say that the stock is in an uptrend, it will be making higher highs and higher lows. Each rally will bring it higher than the previous high. Each correction stays well above the previous low.
What this means is the stock is climbing up nicely in a positive 45 degrees angle. Or in other words, the stock's price is moving from the lower left to the upper right hand corner.
This is what a stock that is in an uptrend will look like.
It will make higher highs and higher lows. Buying a stock that is in an uptrend is like investing in a champion. When it comes to the stock market, you want to invest in the very best. You don't want to pick stocks that are mediocre. Why put your hard earned savings into a stock that only produces 10% return a year?
Why not put it into a stock like NVDA?
And the first step for you to spot a stock that will be the next NVDA is to look for stocks that are in an uptrend.
The chart above shows the daily chart of NVDA. One glance will tell you that the stock is in a nice daily uptrend. The stock is making higher highs and higher lows. If you find it a bit hard to figure out whether a stock is in an uptrend or downtrend, you can see whether it is moving from lower left to upper right.
A stock that is in a nice uptrend will be moving up in a 45 degrees angle.
Despite the many dips and corrections that NVDA went through, it always is able to move higher. That is the characteristics of a stock that is in an uptrend.
To learn more about trend trading and trend following, you might want to check out Dstockmarket's A Beginner's Guide To Trend Trading.
In this simple guide, I will teach you:
If there is one thing that you can take away from this article, just remember this...
All the big stock market winners are in an uptrend.
There is a reason why the stock is in an uptrend. The future prospect of the company is bright enough to propel it higher. Having said that, remember never ever to buy a stock that is in a downtrend.
What is a downtrend, you may ask.
Well, if an uptrend is where the stock makes a higher high and higher low, then a stock that is in a downtrend will be making lower highs and lower lows. It is the exact opposite of what the uptrend is doing.
The stock chart for a stock that is in a downtrend will be like it is moving downhill from upper left to lower right.
Many people think that if a stock is in a downtrend they should buy more. The reason is they think it is cheaper to buy the stock. It is at a bargain. If they buy more when the stock goes down, then when the stock bounces back up, they hope to gain more.
That is foolish thinking and will never work in the stock market.
Remember, the biggest stock market winners in history will be making uptrends.
Another reason why NVDA rose a lot is because it is also in a weekly uptrend. A stock that is in a daily uptrend is already very powerful. Just imagine how powerful it can be if the weekly trend is also up.
The weekly charts show us the long term trend of the stock. Therefore, if the weekly trend is up, then the stock is very likely to go up more in the long term.
Take a look at the weekly chart of NVDA below.
It is very obvious that the weekly stock price is making higher highs and higher lows. It is moving from lower left to upper right in a 45 degrees angle upwards. That is the characteristic of strong powerful stocks.
If a stock is in a weekly uptrend, there is a big possibility that it will continue to move higher. A trend in motion tends to stay in motion. That is why stocks making new highs tend to move even higher and surprise many many people in the investing world.
Have you ever heard about the Wall Street saying "The Trend Is Your Friend"?
I'm sure most of you will have heard about it. If the long term trend is up, more often then not, the trend will continue to go up.
One of the ways that you can use to gauge whether a stock is powerful enough to move higher is to utilize a trend following indicator called the moving average. Moving averages are the average price of the stock within a selected period of time.
So for example, if we take the 50 week moving average, that is the average weekly price of the stock for the past 50 weeks. Your charting software will automatically calculate and plot them on the chart for you.
The red line in the weekly chart above is the 20 week moving average and the blue line is the 50 week moving average. Here is the simple rule to remember:
All top gainers that go up tremendously over the years in the stock market will have this characteristics. This is the criteria for a champion in the stock market.
Imagine if you are in charge of selecting University students for admission. What do you look for? Well one of those criterias is Straight A's. A stock that is above its rising 20 week moving average and rising 50 week moving average is like a Straight "A" student.
Always remember to select stocks that are above the "rising" 20 MA and "rising" 50 MA. If it is a flat 20 MA and 50 MA, then it lacks power. A rising moving averages tell us that there is power behind the stock.
Every successful company starts with a great idea.
The idea is then turned into a product or service.
If you look at the products and services of companies that make it great, you will realize one similarity...
They have an impressive product.
Consider some of these examples:
When it comes to Nvidia, they specialize in Graphics Card. Most laptops and PCs using the Windows OS has an Nvidia graphics card inside.
Why do PC manufacturers choose Nvidia instead of other companies? Well, that's because they have come out with impressive products.
Whenever you see a company coming out with a product that adds tremendous value to society, this is a company that you want to invest in. If you see customers prefer the product from the company instead of other brands, then that is perhaps a company that you should invest in.
Looking at the past, it seems so obvious why we should choose Microsoft or Apple of Google or Nvidia.
But if you really think about it...
It all boils down to common sense. When seeking to find the next Nvidia, you should ask these questions:
These are the $10 Billion dollar questions you should ask.
Go through any stock market winner in history and you will answer yes to most of the question above.
When a company such as NVDA has an impressive product...the next point is what will generally happen.
Great products will always be in great demand. Great demand will eventually lead to more sales and more earnings.
In the short term, there are many many factors that move a stock price. A plunge in the stock market may depress the stock price. Oversold or overbought technicals may move the stock up and down in the short term. Some candlestick patterns may cause the stock to bounce up for a week.
Short term fluctuations are the domain of traders. The market seems irrational in the short term. Stocks can bounce up and down for a variety of reasons in the short term.
But ultimately only one thing that will make a stock's price go up in the long term...
Take a look at the diagram above and you will be able to tell me what really move stock prices in the long term.
Yes, it is earnings...
If a company can grow its earnings every year picture what will happen to its stock price?
Let's take this example below:
The above scenario may seem like an exaggeration but do remember that anything is possible in America. If you can create a product that many people love and want, you will be on your way to making more than $350 million per quarter.
Let me ask you this question...
If the stock price is $10 in Quarter 1...what do you think the stock's price will be in Quarter 5? Probably $100 right? Or perhaps even more.
Okay let's add this scenario...
Along the way, the stock market has many big plunges. Do you think that the stock is still worth $10 by Quarter 10?
Of course no.
Even is the stock market plunges. Investors will still value the company's share price way higher than $10 by Quarter 10 if it is earning $350 million per quarter. The stock price will probably be worth $250 by quarter 10 to reflect the earnings.
That is why I say that in the short term...many factors will influence the stock's price. But in the long term, it is always the earnings from the sale of an impressive product that will determine the stock's price.
Now that you know that it is earnings that will move the price of a stock in the long term, let us take a look at the earnings history of NVDA.
The chart above from Macrotrends show us the stock price of NVDA along with its Trailing 12 Months Earnings Per Share. Notice how the earnings per share went up dramatically from mid 2016 onwards?
Yes, earnings is the reason that powered Nvidia's stock price upwards.
When you see a stock like NVDA that has a massive earnings per share growth you can be quite certain that the stock's price will also go up to reflect the growing business.
There are so many financial ratios and information that one needs to look at to do fundamental analysis but in the end it is earnings growth that matters.
Here are some earnings and sales stuff to take into consideration when looking for the next NVDA:
If you do an analysis on NVDA's earnings estimates and actual earnings, you will realize that it has beat the earnings estimated of analyst for many many quarters. This is what we call earnings surprise. The bigger the difference between actual earnings and earnings estimates the better it is.
A powerful stock will have very substantial earnings growth whether quarter to quarter or yearly. Sales growth is also an important factor for you to consider.
Basically earnings and sales for a company should be growing tremendously over time. That is the makings of a super stock like Nvidia.
The last thing that you need to look at to find a big winner in the stock market is to look at the sector's chart. It is very rare that a stock will grow by itself. Yes it can happen but more often that not a stock needs the wind behind it.
The wind is the sector that the stock is in. If the sector is in an uptrend, then it is very likely that the stock will have a super bullish run up.
Many investors and traders make the mistake of not studying the sector's chart.
Since Nvidia belongs to the semiconductor sector, we will need to study the chart of the semiconductor sector.
The chart above is the weekly chart of the semiconductor ETF. The SMH tracks the performance of the semiconductor sector. Notice how the SMH broke out of a weekly triangle around mid 2016.
It begin a nice weekly uptrend that help send many semi stocks higher. When the tide rises it lifts many boats. The SMH more than doubled from around $50 to $113. When sector indexes double, some individual stocks go up even more.
It is always a good idea to find the next big stock market winner in a sector that is breaking out.
By the way, I think you might notice that the SMH is also above its rising weekly 20 MA and rising weekly 50 MA. This is the picture of strength and power in the sector's chart.
If one study enough history, we might be able to spot the next big winner in the stock market. After all history repeats itself again and again in the stock market. It is up to us to figure out why stocks move up and down and learn from them.
In this article I have help you to look at why Nvidia went up so much. We look at:
You need not do a complex analysis to find the next great stock. Some simple technical analysis, common sense, fundamental analysis and sector analysis is all you need to do. In fact the simpler the better.
I hope that this article has opened your eyes and showed you how to spot the next great big winner in the stock market like Nvidia.
Happy investing and trading!
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