One Market Darling That's Set to Fall
Be careful who you get your market advice from...
Because the average investor is prone to lose money.
This past weekend, I (Jeff Havenstein) was playing pool with a group of friends I hadn't seen in a while. As usual, they asked me which stocks I'm looking at and want to buy.
And as usual, the stocks I was talking about didn't interest any of my buddies... a consulting firm, a big player in animal health, and even a sleepy water utility.
They were expecting me to give them the next big tech stock that'll soar triple digits. But I prefer to buy stocks that dominate their niche and have massive cash flows. These are the types of stocks that go on to compound your wealth over time – even if you don't see a meteoric rise in the short term.
As with any talk about stocks, chipmaker Nvidia (NVDA) came up. Two of my friends were going on and on about how much they made in Nvidia over the past several months.
Then one of them talked about buying more shares – a lot more shares – at today's price. He believed the stock would continue to soar.
When he asked for my opinion, I didn't have much to say. As a valuation-conscious investor, I wouldn't buy Nvidia right now when it's trading at a nosebleed 28 times sales.
However, I also said I wouldn't be one to short it either – i.e., bet on its price to go down. After all, this is one of the best businesses ever created. And it has a whole army of buyers behind it.
But for anyone thinking about adding to their Nvidia position today, or buying shares in hopes of catching the rocket ship, I have a warning...
Nvidia may be on the verge of a major pullback.
You can see that its shares are "overbought" by looking at a measure called the relative strength index ("RSI").
Basically, the RSI is a contrarian indicator. It shows when a stock or index moves too far or too fast in either direction by flagging overbought and "oversold" signals.
When the RSI moves above 70, the stock or index is considered overbought, and a downturn is likely. When the RSI falls below 30, it hits oversold territory, and a reversal higher often follows.
Nvidia is up 77% since its April 4 low. But it appears the stock has gotten ahead of itself...
It's now in deeply overbought territory, with a 14-day RSI around 80.
The last time we saw this high of a reading was back in June 2024. And that was just before Nvidia went on to fall 27%. Take a look...
So although it may sound exciting to buy Nvidia while it has momentum, it's very possible the stock will shed some of its gains over the next few weeks. Of course, stocks can remain in overbought territory for a while. But eventually, Nvidia will pull back.
If you have the stock in your portfolio, it might be time to take some profits at current all-time highs. And if you're a bullish investor who wants to get in on this market darling, I suggest you wait, because there'll likely be a better buying opportunity very soon.
Using the RSI to spot extreme readings is a simple yet effective way to predict where a stock will move next. But when it comes to making specific buy decisions – including the exact day you should buy a stock – you'll need a more powerful tool. That's where our friends at TradeSmith come in...
They've developed a breakthrough way to pinpoint when certain stocks are most likely to soar. With this simple system, all you have to do is type in a stock ticker, and you'll learn the best day to buy into a company, according to history.
With an 83% success rate across 5,000 different stocks, this tool could take your investing to the next level. Get all the details here.
What We're Reading...
- Something different: WNBA players say they're not paid what they're owed... Are they right?
Here's to our health, wealth, and a great retirement,
Jeff Havenstein
July 23, 2025