A 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 RSI, MACD, on-balance-volume, relative 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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Tarquin’s academic background involved a bachelor’s degree in Ecology from Lancaster University in the U.K. That subject, coupled to a fascination with financial market pricing, fostered a unique and innovative approach to analyzing the market ecosystem, an entity he considers to be just a technological manifestation of nature. To harness ideas, he studied further, a Graduate Degree in Software Engineering at Kingston University, London, where he achieved a Distinction. He then achieved another distinction, in the U.K.’s Society of Technical Analysts Diploma, studied at the London School of Economics. Tarquin also runs Chartscholar.com a trading opportunity service for institutional and professional traders.