It’s shaping up to be a massive week for the markets…

Mega-cap tech stocks Microsoft (MSFT), Amazon (AMZN), Alphabet (GOOGL) and Meta Platforms (META) are all scheduled to release quarterly earnings.

And investors will be looking closely to see whether their earnings justify their lofty valuations following this year’s tech surge.

But today, I want to focus on the U.S. market’s biggest tech stock – Apple Inc (AAPL)…

It’s rallied a whopping 35% since early January. And its earnings are due out next Thursday. The tech giant will have a huge influence on where the broader market goes from here…

Changing Pattern

In the chart below, the long-term 50-day moving average (MA, blue line) shows AAPL’s clear downtrend last year.

But in March, July, and at the start of this year, the shorter-term 10-day MA (red line) shows AAPL has also had plenty of counter-swings against that downtrend…

Apple Inc (AAPL)

Source: eSignal

Each of those countermoves began when the Relative Strength Index (RSI) dipped then rallied from oversold territory (lower grey dashed line) – the ‘V’ pattern you can see above.

Those rallies picked up speed when the RSI broke through resistance (green line) and tracked into the upper half of its range. The 10-day MA bullishly broke above the 50-day MA and confirmed these up moves.

But today, I want to focus on the upper range of the RSI.

AAPL rallied to its March peak at ‘1’… reversed when the RSI made an inverse ‘V’ (left red circle)… then fell from near overbought territory (upper grey dashed line).

AAPL continued to dip as the RSI fell back down through support and got stuck in the lower half of its range.

It was a similar story with ‘2’. The RSI inverted (middle red circle) from overbought territory… AAPL peaked at ‘2’ and started to head down… And that fall continued with the RSI stuck in its lower band.

Although everything looked set to repeat at ‘3’, you’ll notice a change in the RSI’s pattern…

This time, the RSI peaked and reversed (right red circle) and AAPL peaked at ‘3’… But the RSI’s fall petered out around support. Then AAPL began to rally again from early March. And the RSI has since bullishly tracked in the upper half of its range.

Now, the RSI and AAPL stock price are headed in different directions (orange lines). So, what am I looking for?

Watch Momentum

We know there’s potential for a change of direction when the stock price and RSI are diverging like this.

That’s because a decline in momentum (falling RSI) will eventually pull the stock price lower with it.

Put simply, there aren’t enough buyers to keep pushing the stock higher.

And that’s what I’ll be looking for around here. If the RSI keeps tracking lower, we can expect AAPL to roll over too.

However, until the RSI shifts, and stays, in the lower half of its range (below green line) – as we saw after the peaks at ‘1’ and ‘2’ – any down move will be short-lived.

Regards,

Larry Benedict
Editor, Trading With Larry Benedict

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