Don't Ignore This Chart!

20 Day EMAs Are Huge Technical Weapons

 | 

Moving averages are lagging overlays by definition as we use historical data to determine their position on a price chart.  But many traders use moving averages as support during periods of trending prices.  Personally, my favorite is the 20 period EMA.  Obviously, it can't guarantee us support in an uptrend or resistance in a downtrend, but if you follow price action closely, you'll see that it does a nice job of helping to minimize risk.  Mitigating risk is paramount to a successful trader.  On the AAPL daily chart below, you'll see that the 20 day EMA provides us no help whatsoever during periods of price consolidation.  But recently AAPL broke down beneath its 20 day EMA on heavy volume and every attempt to clear that moving average hurdle has failed - so far.  I wouldn't consider AAPL as a long candidate until one of two things occurs.  Either AAPL clears its 20 day EMA resistance on heavy volume or a positive divergence prints on the MACD on its next new closing low.  For now, ride the downtrend.  Check it out:

The heavy volume confirmed the July breakdown and the red arrows show the serious resistance faced at the declining 20 day EMA.  Don't overlook the power of this key moving average as prices trend.

Happy trading!

Tom

Tom Bowley
About the author: is the Chief Market Strategist at EarningsBeats.com, where he provides stock market education, guidance, and trading strategies using a unique combination of technical, fundamental, and historical analysis. Tom provides EarningsBeats.com members with four portfolios (Model, Aggressive, Income, and Value), all designed to beat the benchmark S&P 500, and a revolving Watch List of hundreds of companies reporting strong quarterly earnings (must beat both revenue and EPS estimates) and exhibiting technical strength as well. These companies comprise EarningsBeats' annotated Strong Earnings ChartList (SECL), from which Tom trades exclusively. Tom writes a Daily Market Report (DMR) for members to include an executive summary, market outlook, sector/industry watch, and trading ideas. Learn More
Subscribe to Don't Ignore This Chart! to be notified whenever a new post is added to this blog!
comments powered by Disqus