Yesterday, we looked at a chart of Owens Corning Inc.., and noted that the stock had been on a bullish run since January.
Today’s Chart of the Day is a Daily Price chart for J.P. Morgan Chase & Co (NYSE: JPM).
Now, the Keltner Channels serve as an overbought/oversold indicator. When the daily stock price is trading above the Upper Channel, it signals that the stock is overbought.
Stocks in a price uptrend do not advance in a straight line. There are always price retracements along the way.
When a stock becomes overbought, it normally declines in price as the inevitable profit taking occurs.
Below is a daily price chart for J.P. Morgan Chase & Co. stock along with the three Keltner Channels (Upper, Middle, and Lower).
The JPM daily price chart shows that JPM is in a strong price uptrend, and recently became overbought ten times as the stock traded above the Upper Keltner Channel (circled in red).
As you can see, after trading above the Upper Channel in all ten scenarios, JPM experienced a pullback.
Yet, even though JPM retraced after each overbought occasion, the stock continued to rally upwards in each case.
If you want to participate in this rally, where is the best place to enter?
We use the Keltner Channels to help us select a lower-risk entry point.
A Keltner Channel “Buy Zone” occurs when a stock is trading below the Upper Keltner Channel. Once the daily price is trading below the Upper Channel, it signals a buying opportunity.
If you had purchased JPM shares when JPM entered the “Buy Zone” around May 31st, you’d be up 22.9% on the stock by now. (Not to mention, if you’re a member of PowerTrend Options, last week’s call options on JPM is already up 21.3%)
Knowing that JPM shares are continuing to rise, experience pullbacks, and rally again, we’ll be paying attention to future pullbacks in order to get in at the lowest entry point.
Additionally, we’d like to circle back to how a previous Chart of the Day stock has done…
On November 4th, we highlighted Restoration Hardware (NYSE: RH) noting that the daily price had dipped below the Upper Keltner Channel, signaling a PowerTrend ‘buy’.
If you happened to have purchased RH shares on that day, you’d already be up 3.35%…
But… if you had purchased an an option contract, you would be up 54.88% in less than three weeks’ time!
That’s the power of options.
Editor, Chart Of The Day