As the Cycle Of Price Action progresses off its lows, Oliver Kell uses the 10 and 20-day exponential moving averages to indicate the trend's direction and momentum.

The EMA Crossback is the first time the price retests the moving averages after a Wedge Pop.

Eventually, the price will consolidate the quick pop off the lows and start moving sideways or slowly drift downward into the moving averages. Another ideal tradable range will be set up, providing a clear pivot and a defined area to control risk.

Once the Reversal Extension off the lows is confirmed by a Wedge Pop, the moving averages will align and guide the stock higher. The EMA Crossback is an optimal buy area to position early in the Cycle Of Price and will give traders the flexibility to allow the cycle to unfold.

First Consolidation After The Wedge Pop

When the Wedge Pop reclaims the moving averages, pay close attention to the stock as it responds to any selling pressure. Focus on the price levels it respects as it slowly digests the recent gains.

Remember, a pivot point is a critical price level on a stock chart in which the direction of a trend may continue or change. When the moving averages catch up to the strong price action through a Wedge Pop, The stock will begin to consolidate and set up another tradable pivot.

The EMA Crossback is the first consolidation into the rising moving averages.

Again, trading through a pivot can help guide us in two ways:

  • If the price continues up through a pivot, the trend should continue in that direction
  • If the price fails at the pivot and reverses lower, then the timing isn't right yet

Symbol: NOW
Company:
SERVICENOW
Year: 2020

Moving Averages Support Price Action

From this point, you want to see the moving averages supporting the price as it advances.

Price will make new highs, fade into the moving averages, retest the highs, and then retest the moving averages. As the moving averages rise, watch for strength to push the price through the recent highs and continue upward.

The EMA Crossback works best when the price gently moves sideways, allowing the moving averages to rise to the price. Sometimes, there will be a slow drift downward into the rising moving averages.

Symbol: APP
Company:
Applovin
Year: 2023

Trading The EMA Crossback

The EMA Crossback is ideal for starting a new position to maximize potential gains, as it offers traders a low-risk buy point early in the Cycle Of Price Action. Aggressive traders may use this consolidation to increase their exposure from buys at the Reversal Extension or Wedge Pop.

Oliver Kell buys in the EMA Crossback area as the price shows positive price action against the 10 or 20-day moving averages. Whatever your trading style, the important concept regarding the EMA Crossback is to see the price supported near the moving averages and buyers show up.

Stops are placed below the price bars, and pivot points you execute against. Raise the stops in a trailing format as the stock increases and moving averages continue to support the price action.

Use multiple timeframes to help identify support and positive price action. Look at a lower timeframe to confirm the action on a higher timeframe.

Execute on follow through after the stock has shown support and there is evidence of demand.

Symbol: LLY
Company:
Eli Lilly & Co.
Year: 2023

Cycle Of Price Continues

Buying early in the cycle allows you to hold onto positions longer while the Cycle Of Price unfolds.

When holding for a multi-week move, buying at the Wedge Pop and EMA Crossback naturally offers a lower entry price. With a low average cost, you can hold through natural shakeouts as the price progresses higher.

Ride the moving averages higher while raising your stops below new higher lows. The Base n' Break provides a good resting point to help identify a new higher support area to raise your stop.

Eventually, the cycle evolves and forms an Exhaustion Extension or tops out. Selling into strength allows you to hold a partial core position longer with the possibility of adding back to it later.

Symbol: META
Company:
Meta Platforms
Year: 2022

Discretionary System

Unfortunately, this is never an exact Science. Use your judgment to determine when strength continues.

  • Every stock chart doesn't necessarily uniformly display every step in the cycle
  • The moving averages are there to help guide the price.

The important concept of the EMA Crossback is to look for price support and then positive action. Wait for buyers to show up instead of blindly buying against the moving averages.

Symbol: CELH
Company:
Celsius Holdings
Year: 2023

Indices And Stocks

Remember, applying the Cycle of Price Action to the general stock index and the individual stocks helps keep our focus on the leaders in the new cycle.

As the index forms an EMA Crossback, the leading stocks will be further along in their Cycle Of Price.

When the market shows strength and the moving averages support price higher following an EMA Crossback, the strongest stocks will break out of bases and make new highs.

Symbol: PTON
Company:
Peleton Interactive
Year: 2020

Note how PTON reversed off its lows and popped through the moving averages before the SPY. When the price consolidated against the moving averages at the EMA Crossback, PTON continued its 500% move while the market slowly drifted higher.

Putting It Together

Early in the Cycle Of Price, The EMA Crossback is an ideal entry point to minimize risk as the trend advances.

Symbol: DDOG
Company:
Datadog
Year: 2021

Entering a stock at the EMA Crossback allows you to hold positions longer as you let the moving averages guide the price higher.

The worst thing you can do is chase stocks as they erratically bounce off the lows. Wait for the first pullback into the moving averages.

Look for the price to show support, then buy with strength when other buyers appear.