The Technology Select Sector SPDR ETF (XLK) was up 1.3% in Wednesday’s session but the share price of Apple (AAPL) barely moved. That is an unusual divergence because Apple is the top holding in the XLK representing 14.7% of its total assets. The stock has been trading in a narrow horizontal consolidation channel for the last month, which is the potential flag portion of a bearish flag pattern. The pattern price objective targets the current intersection of the rising 200 day moving average and the former 2015 highs, in the $130 area. It remains to be seen, if Apple is preparing for the flag breakdown or building a base to begin the second phase of its prior rally, but the lack of participation in yesterday’s tech move is not a positive sign.
Twitter (TWTR) shares are ready to break out of a triangle pattern that has been forming on the daily chart for the past two months. The pattern targets a 30% price objective into the $25 area, which would take the stock back up to its 2016 highs. There are some hurdles that must be overcome first, but the technical indicators say the stock is ready to run and the move could be swift.
Traders need to be prepared for the rally.
The stock successfully retested long-term support in April and then rallied to the 50% Fibonacci retracement level of its 52-week range. The brief test of the retracement level was followed by a pullback to the 50-day moving average and then a series of lower highs and higher lows, which formed the triangle pattern.
Last month the 50-day moving average made a “golden” crossover above the 200-day moving average, and moving average convergence/divergence and the vortex indicator both made bullish crossovers. These indications suggest positive price momentum and an early shift in trend direction. Chaikin money flow has moved above its centerline and continues to track in positive territory, supporting the breakout thesis.
Twitter was up over 3% on Tuesday, closing near the high of the session and on the triangle downtrend line. A break above this pattern resistance targets a price objective measured by taking the height of the triangle and adding it to the breakout level. This projects through the remaining Fibonacci levels and into a vacuum of resistance that was created by the sharp gap lower in September last year.
Twitter is a buy after an upper candle close that takes out triangle resistance at the $18.75 level, using a tight trailing percentage stop. The trade is speculative, but the technical framework is in place and it has a great risk/reward ratio.
(This article was published on TheStreet.com this morning before the market open.)
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