As the Nasdaq and S&P 500 hit record highs, Magnificent Seven stocks Nvidia (NVDA) and Meta Platforms (META) lead a powerhouse group of names on IBD Leaderboard. And to further highlight demand for Meta, Nvidia stock and these other tech titans, 10 out of the 13 IBD Leaderboard members also just made this month’s list of new buys by the best mutual funds.
A strong bull market and seemingly unceasing demand for companies tapping artificial intelligence continue to drive these and other stocks. But when the market indexes are soaring, investors should remain grounded, armed with time-tested rules for when to sell stocks to lock in profits.
One key for managing risk in a powerful uptrend is to monitor a stock in relation to its 50-day moving average. And don’t forget the all-important earnings season, with Shopify due tomorrow and Nvidia set to report Feb. 21.
How High Is Too High? Meta, Nvidia Stock And Their 50-Day Lines
In a healthy market, leading stocks will trade solidly above their 10-week and 50-day lines. Plus, those benchmarks will be in an upward trend. Currently, that is certainly the case for Meta stock, ServiceNow, Shopify, Nvidia and the other IBD Leaderboard names.
But a stock can climb too far above its 50-day line. That signals it may be due for a pullback or a sideways move.
For example, having blasted past the 700 mark, Nvidia now trades a whopping 34% above its 50-day line. Meta stock has climbed around 28% above that benchmark. Ahead of earnings Shopify stands more than 16% above its 50-day. Meanwhile, Uber is around 12% above the key moving average.
Generally speaking, when a stock climbs more than 5% above its 50-day line, the chances of a pullback begin to increase. By no means an automatic sell signal, it is a reminder to monitor the stock to see if it and indexes may be overheating.
It can be healthy for Nvidia stock, along with Uber, Meta and others, to mildly pull back or trade sideways for a while. That helps them digest their big gains and avoid getting too frothy.
Managing Risk By Locking In Some Gains
One guideline for locking in some gains on the way up in big winners like Nvidia stock and others is to take some profits when shares rise 20% to 25% above the initial buy point. This strategy can be applied as a stock makes a major run over an extended period of time.
For example, while maintaining a position in big movers like Meta, Uber and Nvidia stock, investors can lock in partial profits. This allows investors to safeguard recent profits while still standing to benefit from a continued climb.
Follow Matthew Galgani on X (formerly Twitter) at @IBD_MGalgani.
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