NVIDIA's correction eyes gap fill at $178

Last Thursday, NVIDIA shares surpassed $190 for the first time ever, but they failed to sustain this record high and entered a correction period. Since then, prices have approached the $183–$184 range, which has acted as a strong resistance over the past two months. The pullback may extend further, particularly given the unfilled gap at $178 from the sharp bullish move on September 29.

The Stochastic Oscillator keeps dropping after entering overbought territory, showing that the correction is still happening. The $178 level is a key target for sellers as it coincides with the aforementioned gap, the upward trendline from the September low, and the 50-day moving average support. Such a mix of factors suggests taking profits on short positions may be prudent.

Recent weeks have featured several major announcements of substantial capital inflows into artificial intelligence. The most prominent is NVIDIA's planned $100 billion investment in OpenAI, the creator of ChatGPT. However, this deal has been widely criticized for its repetitive nature, as the company intends to use these funds primarily to purchase NVIDIA's AI chips, thus creating inflated demand for their products.

Experts interviewed by Bloomberg emphasized the significant dangers involved in these transactions, likening them to the round-robin financing plans that were all the rage during the late-1990s dot-com bubble. In those schemes, unprofitable firms created artificial demand for each other's services, misleading investors in the process. While NVIDIA is now lucrative enough—unlike many dot-com era businesses—the same cannot be said for OpenAI. The AI developer is not expected to turn a profit until the end of this decade, and can only maintain its demand for NVIDIA chips through continued external funding.

The following trading strategy may come into play:

Sell NVIDIA shares at the current price. Take profit: $178. Stop loss: $190.