Riding the artificial intelligence zeitgeist, Nvidia (NVDA), Meta Platforms (META), Alphabet (GOOGL), Amazon.com (AMZN) and the other Magnificent Seven stocks drove impressive gains across 2023 and 2024. But how should investors handle Nvidia stock and other top growth names when it comes to how to invest in 2025?
Rather than guess with often-faulty predictions, investors can improve their odds of success — and keep those troublesome emotions of fear and greed at bay — by learning how to read stock charts.
Start by monitoring the three telltale lines for how to invest in Nvidia, Meta, Google, Apple (AAPL), Tesla (TSLA) and each stock you own. And look for this additional clue that signals a change for the better — or worse.
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How To Invest Tracking Key Benchmarks
Stock charts tell a story, revealing strength, weakness or uncertainty and hesitation. Two key benchmarks to watch are the 50-day moving average and the 10-week line. Professional investors use both to gauge support and resistance in the market indexes and individual stocks. Action around the 21-day exponential moving average offers traders another gauge for determining if and how to invest in a stock.
Take Nvidia as an example. After launching a breakout in January of 2023 following a dismal 2022, the AI juggernaut did not breach its 10-week moving average until hitting a spat of volatility in August of 2023. But Nvidia refused to “live below” that benchmark. It soon regained support, sparking another big run from January to June.
Then a new storyline emerged as fear, greed and uncertainty came into play.
With a focus on the eight rules of selling, investors began to weigh FOMO — the fear of missing out — with FOMU — the fear of messing up. For those who missed the huge gain in Nvidia stock was it time to get in before they missed this AI gravy train? Or was it time to scale out of the stock to incrementally safeguard hard-earned gains?
As 2024 comes to a close, Nvidia has slipped below its 50-day and 10-week lines. In determining how to invest in stocks, another factor to consider is that its latest breakout was from a late-stage base. Because they form after a major climb, such patterns entail more risk and often coincide with increased volatility. That fits Nvidia to a tee.
That, of course, does not mean the stock cannot keep climbing. But as Nvidia loses support at key moving averages, keep that warning sign and the principles of risk management in mind.
How To Invest: Clues For Tesla, Meta And More
In addition to tracking support or hitting resistance at these benchmark lines, also monitor how far above these moving averages a stock or market index has roamed.
After Tesla stock hit multiple record highs in December, it now stands 55% above its 50-day line. When a stock reaches such lofty heights, the chances of at least a temporary pullback rise commensurately.
Think of high-flying AppLovin (APP). After rocketing as much as 80% above its 50-day line earlier this month, it triggered an inevitable pullback. Yet note how AppLovin has clung to support at its 21-day line and remains around 35% above its 50-day moving average.
In contrast to Tesla, fellow Mag 7 members Microsoft, Apple and Google stock trade 6% to 14% above that line.
Bottom line: Tracking how a stock behaves around the 50-day and 10-week lines provides essential insight into its true health, promise and potential pitfalls.
Stock Charts: Will Nvidia Stock Cross The Line?
Investors should also note the relationship of the 50-day and 10-week moving averages with their 200-day and 40-week cousins. As a rule, you want to see the shorter-term lines above the longer-term lines.
It’s a sign of technical weakness when, for example, the 50-day moving average moves below the 200-day line. Conversely, it’s a sign of rebounding strength when the 50-day line crosses back above the 200-day benchmark.
Given this year’s strong bull market, the 10-week lines for Nvidia, Apple and all the Mag 7 stocks stand above their 40-week moving averages — exactly what you want to see. Also note that these key moving averages continue in an upward trajectory, another positive sign.
Nvidia, Microsoft and Apple offer recent illustrations of how this relationship between shorter- and longer-term moving averages work.
Marking a positive change in June, Apple’s 10-week line climbed back above its 40-week benchmark. Plus, Apple’s 21-day line just crossed back above its 50-day line earlier this month. The iPhone maker rose steadily from there.
As December winds down, Microsoft’s 50-day line has edged back above its longer-term 200-day line as the shares of the software giant rise. Like with Apple, the software and AI giant’s 21-day has just moved back above the 50-day line.
Nvidia stock, on the other hand, has a looming threat. While its 50-day line remains solidly above its 200-day line, the 21-day exponential moving average has begun to trend down and may soon undercut the 50-day benchmark. Such a move does not spell doom. But it does hint at rising weakness rather than gathering strength.
Are Your Stocks Relatively Good Or Bad?
In addition to the 50-day and 10-week benchmarks, a third metric to monitor closely is the relative strength line.
The RS line compares a stock’s performance to that of the S&P 500. A rising RS line like we saw for Tesla and Google in December shows a stock is outpacing the general market. A downward sloping line — as with Nvidia as the year comes to an end — means the stock is lagging the market.
Identifying market-leading stocks is one element of The IBD Methodology. And the RS line helps spot them.
Read Between (And Above And Below) The Lines
As Nvidia dips, Tesla rises and Microsoft sets up a new base heading into the New Year, keep a close eye on the three lines highlighted here. They may form a line in the sand at which investors will sell some shares in Nvidia or other holdings to protect gains. They may lay down a floor of support that shows a stock like Microsoft is gearing up for a new climb.
But whatever lines get drawn in 2025, avoid drawing any conclusions without first checking the chart.
Follow Matthew Galgani on X (formerly Twitter) at @IBD_MGalgani.
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