The 9 EMA is the momentum lane

The one idea

The 9-day exponential moving average is the fastest line on the house chart. When a stock is in a strong run, its daily closes tend to stay on top of the 9 EMA, pulling back to it and bouncing. Think of it as a lane: while the stock closes inside it, momentum is intact. When it starts closing under the 9, the sprint has slowed to a jog, and the slower 21 EMA takes over as the line that matters.

The lane is open when three things are true together: the close is above the 9 EMA, the 9 EMA is above the 21 EMA, and the 9 is pointing up.

What ISRG showed this fall

• The lane closing (Aug 20): a big red day closed at $374.48, well under the 9 EMA ($387.72). Over the next 15 sessions, 14 closes stayed under the 9, the 9 crossed below the 21, and the stock drifted to a $350.16 close on Sep 8.
• The lane reopening (Sep 11): ISRG closed at $369.15, back above the 9 EMA ($364.92). Within days the 9 was rising and back over the 21.
• Riding it: from Sep 11 through Oct 26, 30 of 32 closes were above the 9 EMA. From the Sep 10 close of $360.46 to the Oct 26 close of $451.63, the stock gained about 25%.
• A wobble, not a break (Oct 1–2): two closes slipped under the 9, and on Oct 2 the close ($391.95) was 51 cents under the 21 ($392.46). On Oct 5 it closed back over both. A shallow, brief dip like this is how strong lanes usually pause.
• The close is what counts (Oct 21): ISRG opened at $402.50 and traded down to $398.99, far under the 9 EMA, but it closed at $428.12, above the 9 ($426.30). Intraday it looked broken; by the close the lane was still open.

How far is too far?

The lower panel shows each close’s percent distance above or below the 9 EMA. During this run, ISRG’s biggest stretch was about 4.9% above the 9 (Sep 21), and on Oct 26 it was about 3.2% above ($451.63 vs $437.77). Every stock has its own normal stretch. Buying when a name is at the top of its usual stretch means you’re buying the spot where it usually pauses or snaps back toward the 9.

How the house uses the 9

• Timing adds: in a stock whose lane is open, a pullback that touches or comes near the 9 EMA and holds on a closing basis is a lower-risk spot to start or add than a big up day.
• A warning, not a sell: one close under the 9 means momentum is cooling. The sell discipline lives on the 21 EMA, which is tomorrow’s lesson.
• Skip the lane in sideways stocks: in a range (Lesson 13), price crosses the 9 constantly and it tells you nothing.

Rule of thumb

Read the 9 on closes only. Close above it with the 9 rising: the lane is open. Close under it: momentum is pausing, so watch the 21. Price far above it: wait for it to come back toward the line before you buy.

Common mistake

Treating an intraday poke below the 9 as a broken trend. ISRG on Oct 21 is the example: it was more than $27 under the 9 at the low and still closed above it. The other mistake is the reverse, selling a whole position on the first close under the 9, when strong stocks routinely wobble under it for a day or two, like ISRG did Oct 1–2.

Try it

Take a stock you follow or watch and add a 9 EMA and a 21 EMA. Count how many of its last 30 closes were above the 9. If it’s 25 or more with the 9 above the 21, the lane is open. Then find its biggest percent stretch above the 9 in that stretch, and note where today’s close sits against it.

Up next

Lesson 20 (Wednesday): the house rule, where the 21 EMA is the line in the sand for holding or exiting.