A quick example of a bearish divergence trade…

divergence where an indicator has failed to confirm a new price high and is starting to roll-over, implying a tired uptrend. Indicators where negative divergences are most effective include the 14-day RSIMACDon-balance-volumerelative ratio, as well as breadth studies.

Apple (AAPL) has struggled the past two weeks, underperforming the broader market. The chart exhibits a bearish momentum divergence.

By that we mean the 14-day RSI failed to confirm the record price high on June 7th, a symptom of tiredness.

When up trends are exhausted it pays to take a step back, sit on the fence, and wait to enter from a lower level. Apple is pulling back over the short-term, heading towards the $184 region, reverting to its 50-day exponential moving average as well as a lateral shelf drawn across from the May record high.

It is from that level, around $184, where longs could be initiated, ahead an expected run up to $200. Once in, a stoploss could be positioned just under $180.

Essentially, the trend is up but weakness is forecast over the short-term, a move which presents opportunity for entry.

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