Apple AAPL Daily Chart Shows Strength with Divergences

May 4, 2009: 9:22 AM CST

Apple Inc (AAPL) has been a relative strength leader off the March 6th market bottom.  Let’s take a look at its currently daily structure to see where it’s come from and where it might be heading.

First, observe the powerful $45 price move up (47% increase) off the March lows – actually Apple showed relative strength here, as the S&P 500 made a lower low in March 09 while Apple held above its January low.  Stocks showing relative strength often outperform the market when the market is in a rally phase.

Price has formed an ‘arc’ pattern into the highs above $127.50.  Sometimes it’s easier to think of price moves (or swings) in terms of geometry for clarity of analysis.  Though price  has shown absolute and relative strength, upmoves cannot persist forever, so a gentle rounding of price action would be considered normal.

There’s some non-confirmations setting up against the recent rally – namely a negative volume trend (divergence) that you can trace back to October 2008, and a negative Momentum divergence (that you can trace back to early April).  Both of these hint that the price swing is coming to an end soon, and that odds favor at least some sort of a pullback rather than continual price movement to the upside.

I had a few conversations with traders and money managers over the weekend and virtually every one is expecting some sort of pullback in the broader market – then one noted “What if the market just keeps rising because everyone is anticipating a pullback?”  Food for thought, for sure.

Finally, we must consider Apple’s daily chart to be officially in an uptrend now, as price has formed higher highs and higher lows, and taken out the prior four swing-highs on this chart.  The moving average orientation is also bullish (with the exception of the declining 200 day SMA).  The 20 EMA is above the 50 EMA and price is above both.

This hints that any pullback would be expected to hold support first at the 20 day EMA, which would offer a low-risk buy-in opportunity… should it arise.

Corey Rosenbloom, CMT
Afraid to Trade.com

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4 Comments

4 Responses to “Apple AAPL Daily Chart Shows Strength with Divergences”

  1. dacian Says:

    Hi,

    What if it pulls back because everyone thinks it won't because everyone expects it to pull back? The truth is you have 2 tools, fundamentals and technicals. Are there manipulations? Of course; but we also say the market is bigger than everyone (really?). So right now it's rather betting; fundamentals are quite poor and prices are out of whack relative to that.

  2. Corey Rosenbloom, CMT Says:

    Dacian,

    That's why trading the Market is so fun – we have to do our analysis, but if something is so obvious and everyone's seeing it, for whatever reason, the price tends to do the opposite of what seems so obvious. It can be endlessly frustrating, but it's just another reminder that we operate in probabilities, never certainties.

    Not making a direct comparison, but remember the Technology Bubble when companies with no earnings whatsoever achieved share prices and market caps larger than Wal-Mart and some other Blue-Chip companies.

  3. dacian Says:

    Hi Corey,

    I do agree about the tech bubble; but refusing to participate in such monstruosities allows you to avoid being haircut. Are you loosing a substantial part of the move? Yes, but you keep most of your gains. Regarding the recent rally, in a couple of months, when prices will be eventually higher, they still won't sell because we are in a new bull market!

  4. dacian Says:

    Hi Corey,

    I do agree about the tech bubble; but refusing to participate in such monstruosities allows you to avoid being haircut. Are you loosing a substantial part of the move? Yes, but you keep most of your gains. Regarding the recent rally, in a couple of months, when prices will be eventually higher, they still won't sell because we are in a new bull market!