Nvidia Corp.'s stock chart is painting an impressive picture as it continues to make record-breaking moves. Although the stock is technically the most overbought it has been in six months, there are indications that the rally is far from over.

Chart watchers are eyeing the recent breakout as the start of the next leg of the uptrend, potentially propelling the stock above the $600 mark. Katie Stockton, a technical analyst at Fairlead Strategies, suggests that the breakout is a bullish medium-term development. It has resolved a four-month trading range and ushered in a definitive upward move.

Nvidia's stock (NVDA) saw a rise of 2.1% in afternoon trading on Wednesday, marking a fifth consecutive gain and a third consecutive record close. Over the past five sessions, the stock has soared 14%, demonstrating its best five-day performance since June.

This impressive rally coincides with the company's announcement of expanded partnerships with drug-discovery companies and its selection as the provider of centralized car computers for various Chinese electric-vehicle makers.

On the stock's chart, the Relative Strength Index (RSI) has climbed to 72.03, according to FactSet data. Many analysts consider RSI readings above 70 as a sign of overbought conditions. In fact, Nvidia's RSI is now at its highest level since reaching 74.77 on July 18.

It's evident that Nvidia's stock is currently in a strong position, defying overbought conditions and attracting significant attention from investors. The breakout has paved the way for further gains, potentially propelling the stock beyond $600. With the company's impressive partnerships and innovative technologies, Nvidia is indeed one of Wall Street's favorite stocks for the coming years.

Sources: Nvidia tops the list of Wall Street's 20 favorite stocks for 2024

Bollinger Bands Indicator Signals Nvidia's Overbought Condition

The stock for Nvidia is currently trading 2.5% above the top line of the Bollinger Bands indicator, indicating an overbought status. The Bollinger Bands indicator is composed of three lines that overlay the price chart. The middle line represents a 20-day moving average, while the top and bottom lines are positioned two standard deviations away from the middle line. To learn more about Bollinger Bands, click here.

It is important to note that an overbought condition does not necessarily mean that the stock's rally is coming to an end. In fact, some observers may interpret overbought indicators as a sign of underlying strength rather than a cause for concern.

According to DataTrek Research co-founder, Jessica Rabe, Nvidia's stock is currently at an all-time high but has yet to reach statistically significant overbought levels. Looking at the RSI chart above, we can see that previous instances of similarly high readings resulted in only brief pauses in the stock's rally without derailing its upward trend.

The same can be said for previous occasions when the stock was as far above the top Bollinger Bands line as it is now. Momentum, as stated by Rabe, is a potent tool that should not be disregarded. She emphasizes the importance of adhering to the cardinal rule of "never short a new high" and advises against betting on a pullback despite an unusually significant rally into overbought territory.

In summary, while Nvidia's stock may currently be in an overbought condition, the rally is not necessarily coming to an end. Observations from industry experts suggest that an overbought status could indicate underlying strength. Considering the track record of previous instances, it is wise not to bet against the momentum.

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