As the Cycle Of Price Action declines off its highs, the 10 and 20-day exponential moving averages continue to act as resistance against any upward momentum and guide the stock lower.
The EMA Crossback, to the downside, is the first retest of the moving averages after the Wedge Drop confirms the downtrend. The downside price movements will occur more quickly, but the same principles apply when comparing the EMA Crossback to the upside.
After the Wedge Drop, the price will rally into the declining moving averages and briefly pause. More selling pressure will emerge pushing the stock lower.
The EMA Crossback is a mechanism used to watch the stock trend between the Wedge Drop and Reversal Extension in strong trending bull markets, but can also offer an opportunity to short stocks in weaker bear market conditions.
Shopify had an impressive 150% run after a traditional base breakout that ended with a Wedge Drop just to form another tradable base. The first retest of the moving averages at the EMA Crossback confirmed more time is needed for a new base to develop.
Putting It Together
The EMA Crossback, on the downside, further confirms the downtrend after the Wedge Drop as the price retests the declining moving averages for the first time.
Downtrends are more volatile than uptrends. Ideally, any long positions had already been sold before resistance sets in at the moving averages.
The Cycle Of Price Action progresses more quickly to the downside compared to the upside. What took months to accumulate can take days to sell off.
Stay in cash and let the cycle unfold when you recognize the moving averages act as resistance at the EMA Crossback.