PreMarket Prep Stock Of The Day: Nvidia

Benzinga's PreMarket Prep airs every morning from 8-9 a.m. ET. During that fast-paced, highly informative hour, traders and investors tune in to get the major news of the day, the catalysts behind those moves and the corresponding price action for the upcoming session.

On any given day, the show will cover at least 20 stocks determined by co-hosts Joel Elconin and Dennis Dick along with producer Spencer Israel.

While the broad market is off to a rocky start in 2021, not all issues are moving in the same direction. One of those issues is Nvidia NVDA and is the PreMarket Prep Stock Of The Day.

What A Year In 2020: After ending 2019 at $235.30, the issue followed the S&P 500 index higher and made a new all-time high in mid-February at $316.32. It followed the index lower in late February and into March.

It bottomed a few days ahead of the index on March 18 at $180.62 and rallied to end that session at $202.82. That low came in between its October 2019 low ($170.13) and November 2019 low ($198.59).

After the down month in March, it embarked on a six-month rally that finally peaked in September at $589.07. It reached that area once again in November, but that rally stalled at $587.66 and it retreated to end the year at $522.20. For the year, it was higher by 122%, far outpacing the index’s return of 16%.

Catalyst For The Rally: On days similar to today, the media searches for reasons why the market surrendered its premarket gains or why an issue such as Nvidia is firmly in the green. However, there is not always one specific reason.

The simple explanation is that money is always moving around when investors are selling out of one sector, they’re putting it to work in another. It could be as simple as growth to value and vice versa or there could be specific news driving a sector in the session.

For example, two of its closest peers in the chip sector are also bucking the trend as Taiwan Semiconductor TSM and Intel INTC are higher by 2.5% and 0.5%, respectively.

Moving Forward: While the rally in the issue is positive in a weak tape, is today’s rally a precursor to the year ahead or simply a rare occurrence where it does not mimic the price action of the S&P 500 index?

With its next earnings report not until Feb. 11, it's early for the issue to embark on a pre-earnings rally, which is common in stocks with strong uptrends. Also, with no major rating changes since the day following its last report, it’s doubtful there will be a significant upgrade or downgrade in the issue until after its fourth-quarter report.

Well Defined Trading Range: While bulls of the issue want to blast through $600 and bears want it to crash below $500, the truth of the matter is that it’s in a trading range.

Since its two-day tumble from its Nov. 9 high ($587.66) to $505.13 on Nov. 10, it has been in a trading range between from $510 to $550. Over that time period, a majority of the price action has taken place just above and below the $530 level, which is where it’s at right now.

Perhaps instead of being super bullish or bearish, it may be best to wait until it moves out of this trading range before banking on the direction of its next major move.