Stage Analysis Of NVDA: Is A Stage 3 Top Forming?

Craig Celeste
Craig Celeste

September 8, 2024
7 min read
332 views

One of the most straightforward methods to simplify market timing involves adopting Stan Weinstein’s Stage Analysis. This approach categorizes the price movement of any index or stock into four clear stages: Accumulation (Basing), Uptrend, Distribution (Topping), and Downtrend.

After losing money in the 1962 stock market crash, Stan Weinstein analyzed thousands of charts and began to notice recurring thematic price action where stocks would trend, establish bases, and then either continue or reverse. Stage Analysis was developed to identify the ideal time to buy and sell stocks.

Detailed in his influential book, “Stan Weinstein’s Secret For Profiting In Bull and Bear Markets,” Stage Analysis offers a widely respected strategy for market timing.

By applying the Stage Analysis framework to Nvidia, we can gain insights into its market cycle stages, as we study the price action from the 2022 bear market up until the present day.

Stage Analysis Overview

Stage Analysis was created out of a passion for defining a reliable system to time the market. During his studies, Stan observed that each market cycle encompassed four distinct stages, forming the foundation of his analysis.

Stage 1: Basing Area

After a stock’s price decline and extended sell-off, a Stage 1 Base forms as supply and demand balance out. As buyers and sellers enter a state of equilibrium the price action begins moving sideways.

During this sideways chop, it is best to avoid trading the stock as there is no defined trend. The price will whipsaw up and down around the 30-week moving average, eventually leading to a price consolidation.

Stage 2: Advance

When the price breaks out of a resistance area over the rising 30-week moving average a stock enters its Stage 2 Advnace. This uptrend is often where substantial profits can be generated due to sustained price increases.

The strongest stocks will establish a tight consolidation area near their recent highs before breaking out with significant volume. A persistent uptrend is evidenced by institutional accumulation, characterized by higher volume during upward movements and decreased volume during downturns.

Stage 3: Top

Eventually, momentum will slow when demand decreases and a Top will form. The transition From Stage 2 to Stage 3 will see an increase in distribution with violent downward price movements on an increase in volume.

After a stock advances upward for an extended period, look for signs of decreasing demand that suggest that the price increase is nearing its end. Be on the lookout for sideways choppy price action, when down days have an increase in volume, and up days have a decrease in volume.

Stage 4: Decline

The Stage 4 Decline is the opposite of the Stage 2 Advance. After the stock forms a top it will continue getting weaker and break down through supportive price areas under the declining 30-week moving average.

After many weeks of oscillating near the 30-week moving average and support area, the selling pressure will finally overpower the stock and break it down. After a stock enters a Stage 4 Decline, there will be multiple rallies on lighter volume that will be resisted and ultimately fail.

Stan Weinstein Stage Analysis
4 Stages of Stage Analysis

Stan Weinstein relies on weekly charts paired with the 30-week moving average. Using weekly charts removes the noise associated with quick emotional price movements.

NVDA Weekly Chart

Stan Weinstein traditionally analyzed stocks by looking at their weekly charts with the 30-week moving average. You can easily see any stock’s trend by analyzing the price action.

A confirmed uptrend occurs when the price remains above an ascending 30-week moving average. Conversely, a confirmed downtrend occurs when the price falls below a descending 30-week moving average.

A top emerges when the price chops around a flattening 30-week moving average after an uptrend. A bottom (or base) forms when the price oscillates around a flattening 30-week moving average after a downtrend.

Symbol: NVDA
Company:
Nvidia
Stage Analysis: Weekly Overview

Stan Weinstein Stage Analysis

At the beginning of 2022, NVDA formed a Stage 3 Top after it peaked at the end of 2021. A Stage 4 Decline began once the price dropped below the 30-week moving average as it flattened and began to slope downward.

Note the large weekly distribution volume spikes during the Stage 3 Top and throughout the Stage 4 Decline.

Once the selling volume decreased, NVDA formed a Stage 1 Base as it began to form a bottom. The Stage 2 Advance was confirmed when the price reclaimed the 30-week moving average with an increase in buying volume.

Note the large weekly accumulation volume spikes throughout the 1,200% move.

Currently, we are forming the fourth base of NVDA’s uptrend. Each base has been characterized by a tightness in price before the price advance continued.

2022 Bear Market

The Great Inflation Bear Market of 2022 was one of the worst markets following the 2000-2002 Dot-Com Crash and the 2007-2009 Great Financial Crisis, where many stocks declined over 80% off their highs.

On a daily chart, you can clearly see the sharp decline once the price lost the 50-day moving average. What may have looked like support at the 150-day and 200-day moving averages was quickly lost when the general market saw more selling pressure.

Stage Analysis: Stage 3 Top, Stage 4 Decline, Stage 1 Base
Top: November 22, 2021
Stage 4 Breakdown: April 6, 2022

Stage Analysis

The confirmation of a new downtrend occurred when all the moving averages were lost with an increase in selling volume. Throughout the entire downtrend, there were large distribution volume spikes.

When the key moving averages are all stacked and sloping downward, there is no reason to be buying the stock. During Stan Weinstein’s studies, he confirmed the best action is to avoid the stock altogether and wait for a base to form.

NVDA eventually bottomed and reclaimed the 50-day moving average. Taking almost five months, the Stage 1 Base tested and re-tested previous highs and formed a classic Inverse Head And Shoulders pattern.

2023 Bull Market

After the 50-day Moving average started rising and supporting the price action, NVDA broke out into a new Stage 2 Advance. At the breakout and throughout the advance note the increase in accumulation volume.

After the breakout, the price established a pattern of higher highs and higher lows causing all the moving averages to converge upward. The strength of the uptrend continued to see large gaps into new highs.

Stage Analysis: Stage 1 Base and Stage 2 Advance
Bottom: October 13, 2022
Stage 2 Breakout: January 23, 2023

Stage Analysis

Within every Stage 2 Advance, there is a progression of basing formations. Each base formation is unique providing different strategies for various trading styles.

Remember: The Stage 2 Advance is where substantial profits can be made.

Position traders may want to hold through the first or second base while swing traders will buy after a base breakout and then sell when the price becomes extended. Whatever your style, Counting Bases is a strategy used to monitor the duration of a prolonged uptrend.

Throughout each basing formation the price began to move sideways allowing the moving averages to catch up. There were brief moments where the price dipped below the 50-day moving average but quickly saw supportive price action.

2024 Continue Or Top?

As NVDA progressed higher into 2024 we are witnessing a third basing formation emerge. Following an extended period of price increases, it’s sensible to begin questioning the sustainability of any additional upward movements.

Stage Analysis: Stage 2 Advance and Potential Stage 3 Top
All-Time High: June 20, 2024
Stage 2 Breakout: January 23, 2023

Stage Analysis

Some obvious negatives as we enter September 2024 include the price dropping under a declining 50-day moving average with an increase in distribution volume.

As we proceed with our price analysis continue to challenge the validity of the uptrend.

  • Is the price action tight and forming an ideal tradable range?
  • Is the price action wide and loose compared to the previous uptrend?
  • Will the 150-day moving average continue to support the price?
  • Will selling pressure subside?
  • Have there been any recent accumulation volume spikes?

Compare the current price action to the other basing formations during the Stage 2 Advance. When the price is below the 50-day moving average, note the amount of time needed before support is found.

A one of a kind learning experience with Market Legend Stan Weinstein👇

What To Look For

Your trading style should dictate your decision-making. Position Traders with a lower cost basis looking to hold for a longer mover should become more defensive as the basing formations progress over time. It is advised for Swing Traders to completely avoid the choppy price action and wait for an ideal tradable range.

In the traditional sense, the 30-week moving average is still in an uptrend and supporting the price. A confirmed downtrend will begin when the price loses all the moving averages but a Stage 3 Top may take months to fully develop.

Watch the price and volume patterns closely. Stay bullish with continued positive price action accompanied by an increase in accumulation. Shift to a defensive position if distribution persists and the price continues to decline.

Use the moving averages as a guide to confirm the trend. Lean bullish when the price is above the rising moving averages but adopt a bearish outlook when the price is below the declining moving averages.

Eliminate any preconceived notions of what you think might happen and let the price action guide your decision to buy, hold, or sell.

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