by Shane Ormond
On Feb 20, 2020
Shares of Groupon and Blue Apron tanked yesterday after their quarterly reports reignited skepticism about the companies’ “unconventional” business models. (And by “unconventional” I mean “doesn’t work.”)
Blue apron, groupon, e-trade, morgan Stanley
Blue apron, groupon
Yesterday, we looked at a chart of the TJX Companies, Inc. on an upward trend. We used step one of the PowerTrend “X-ray” system to find that crossover point.
Today’s chart is a Keltner Channel chart for Home Depot, Inc. (NYSE: HD).
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.
Remember, we’re interested in stocks when they’re temporarily oversold…
Meaning they’re on a pullback from being 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 Home Depot stock, along with the three Keltner Channels (Upper, Middle, and Lower).
The HD daily price chart shows that HD is in a strong price uptrend and recently became overbought five times as the stock traded above the Upper Keltner Channel (circled in green).
As you can see, after trading above the upper Channel in all five scenarios, HD experienced a pullback.
Yet, even though HD experienced the pullbacks, the stock always continued to rally afterwards.
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 along or below the middle Keltner Channel. Once the daily price is trading in that range, it signals a buying opportunity.
If you had purchased HD shares when HD entered the “buy zone” around July 22, you’d be up 12.7% on the stock by now.
Knowing that HD 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.