AAPL Divergence and Resolution

May 15, 2008: 9:13 AM CST

Apple Inc (AAPL) suffered just as other stocks yesterday, and fell victim to the ‘end-of-day’ plunge Wednesday.  Although it’s virtually impossible to know how far a price move will go or how quickly it will occur, Apple signaled a momentum divergence that could have clued you in that the risk (short term) increased for intraday traders.

Let’s look at Apple’s (AAPL) 15-minute price chart:

As price carried higher, each subsequent swing was met with lower peaks in the momentum oscillator (which is evident in price itself by comparing the length of the impulse swings).  This was a clue that the bulls were losing strength temporarily to push price higher.

Eventually, price formed a sort of ’rounded top’ or rolling top formation that broke down as price breached the rising 50 period moving average.  There was no guarantee or even sign the the sell-off would be so violent, but the eventual target when the trend rolls over and price breaks through the rising 50 period moving average is the rising 200 period moving average (the pattern repeats itself).

This target was achieved much quicker than most people anticipated, and price staged a pause at that level into the close.

Again, keep your eye on price and control downside risk in positions, no matter how strong the stock is fundamentally when you’re ‘day-trading’ stocks.

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