Daily EMA Compression and Key Inflection Level in AAPL

Nov 29, 2012: 2:44 PM CST

I’m a big fan of observing EMA Compression set-ups on the charts and Apple (AAPL) is forming a clean pattern on the daily chart that may be worth your attention.

Let’s take a look at the daily chart key levels – and EMAs – to watch and then study the recent arc pattern and intraday divergences at work.

Let’s first focus on the Daily Moving Averages and how they can be helpful in planning trading strategies in AAPL.

Cutting straight to the point, the $600 per share level is the key inflection ‘pivot point’ that will determine bullish or bearish short-term strategies depending on what happens here.

Not only is $600 a simple “Round Number” level, but the important 200 day SMA hovers above the price at $596 which also aligns with the falling 50 day EMA resting at $597.

It’s proper to call this a confluence resistance level, but I prefer seeing these situations as unbiased key pivots or inflection points because a breakthrough above this level would reveal that buyers were strong enough to overtake the logical selling pressure into this known upside target.

Thus, bullish strategies (intrday/short-term) are strongly favored above this level and bearish/cautious strategies are favored under it.

With that in mind, price ALSO supported (briefly) off the rising 20 day EMA at $575.

These indicators become your simple price reference points for any short-term trading or analysis strategies in AAPL.

Apple is classically bearish under $600 but a breakdown under $575 would confirm the bearish bias and trigger new likely breakdown sell signals (more selling/liquidation is likely under $575).

Aggressive traders would look to position on initial breakthroughs of these levels ($600 or $575) while conservative traders may wait for one or two closes (daily close) beyond these levels before participating in a potential breakout from these EMA compression levels.

As an added bonus, let’s take a look at the hourly “Arc” pattern and intraday divergences in motion:

I’m also a big fan of seeing arc trendline patterns like this and note the reversal/breakout signal that often leads to successful short-term trades on a clean/clear breakthrough of falling arc trendlines.

Many traders only draw trendlines as straight lines but that doesn’t neatly capture price when the supply/demand relationship (as seen on the price chart) accelerates in a strong momentum move.

Arc Trendlines help demonstrate these periods of sustained price movement like we saw in Apple from $700 to the $500 level from October to November 2012.

In short, we continue to update arc trendlines and await a breakthrough (especially on a gap) beyond these levels to trigger exit signals (for short-sale trades) and perhaps more importantly, aggressive buy signals for a quick reversal or snap-back play (like we saw from $550 to the current resistance shy of $600).

You can also see the positive momentum divergences ahead of the arc trendline breakthrough.

The important factor NOW is the persistent negative momentum divergence that has undercut the snap-back rally to $600’s key pivot.

Like momentum, volume has trailed lower during the sharp snap-back rally.

From a classical sense, odds favor caution as long as price is under $600 (given the resistance and intraday divergences) however the probabilities will instantly shift on a clean breakthrough above $600, especially one met with higher volume.

Focus on these levels and real-time developments from the daily EMA compression prices at $575 and $600.

Corey Rosenbloom, CMT
Afraid to Trade.com

Follow Corey on Twitter:  http://twitter.com/afraidtotrade

Corey’s new book The Complete Trading Course (Wiley Finance) is now available!

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Comments
  • liya Wong

    Thanks for your great tech analysis on AAPL , it's a best of the best analysis that I have never see. Well done.

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