Electronic Arts (EA) surprised to the upside yesterday on earnings but failed to impress traders with tepid future guidance and we’re seeing a sharp gap-down and sell-off from the recent highs.
Let’s take a look at this strong trending stock, note two prior ‘pullback’ scenarios, and chart the probabilities of what to plan now.
Here’s the daily chart and gap-down against the high:
I first wanted to highlight two similar “divergences into the highs” situations ahead of short-term pullbacks or retracements against the strong uptrend in motion.
We’re charting the odds for a third repeat of this “divergence into resistance” pattern seen from November 2013 and March 2014.
Should history repeat, we could see a pullback or retracement for EA shares in the near future.
Both times, price broke under the rising 50 day EMA which is currently trading at the $ 35.00 per share level.
Keep your eye on the spike-low and 50 day EMA confluence near $ 35.00 per share for any additional continuation of the pullback already in motion.
Of course, we have to plan alternate thesis – or in this case – Pro-Trend bullish outcomes for an immediate support and impulse to new highs.
For the moment, odds (at least from a charting standpoint) seem to favor caution and waiting to put on a new buy/long position after this potential sell-swing or retracement finds a support target.
Let’s take a moment to learn a quick educational lesson from the Hourly Chart and current outcome:
EA Shares formed a nice parabolic arc trendline structure through July that ended with a breakthrough of the rising trendline on July 21st.
Note the spikes in red-sell (bearish) volume ahead of today’s gap-down from divergent resistance.
It can be risky buying shares into new highs – usually divergences in an overextended market serve as decent “take profits” signals while breakthroughs of rising-arc trendlines like these also offer “take profit” signals along with very aggressive “sell short” brief time-horizon trades.
If you’d like to learn more about similar “Arc Trendline” patterns, see any number of prior posts on this concept of “Parabolic/Arc Trendlines:”
“Arc Trendline on the Weekly US Dollar Index (still in motion)”
“Key Inflection (and Arc Trendline Lesson) in Apple AAPL” (great lesson)
Log-View of the Arc Trendlines on the US Market Indexes (April 2010 ahead of “Flash Crash”)
Updated Arc Patterns on the US Indexes (again, ahead of “Flash Crash”)
Follow along with members of the Daily Commentary and Idealized Trades summaries for real-time updates and additional trade planning.
Corey Rosenbloom, CMT
Afraid to Trade.com
Follow Corey on Twitter: http://twitter.com/afraidtotrade