Keltner Channels Reveal “Buy Zone” on ITB

Yesterday, we looked at a chart of Walmart Inc., which has been showing a bullish price pattern.

Today’s Chart of the Day is a Keltner Channel chart for iShares U.S. Home Construction ETF (NYSE: ITB).

ITB tracks the investment results of the Dow Jones U.S. Select Home Construction Index, which is  composed of U.S. equities in the home construction sector.

And if we look at the stock contained within the Keltner Channels, we notice something very important.

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.

When a stock becomes overbought, it normally declines in price as the inevitable profit taking occurs.

Stocks in a price uptrend do not advance in a straight line. There are always price retracements along the way. That’s what we’re watching for.

Below is a daily price chart for ITB stock along with the three Keltner Channels (Upper, Middle, and Lower).


The ITB daily price chart shows that ITB is in a strong price uptrend and recently became overbought six times as the stock traded above the Upper Keltner Channel (circled in blue). As you can see, after trading above the Upper Channel in all six scenarios, ITB experienced a pullback.

Even though ITB experienced the pullbacks, the stock always continued to rally afterwards.

If you want to participate in this rally, how should you decide when to get in?

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 ITB shares when ITB entered the “Buy Zone” around March 29th, you’d be up 24.5% on the stock.

But if you had bought the January 17, 2020 $30-strike call option, you would be up 106.7% by now! That’s after only one trade!

Knowing that ITB shares are continuing to rise, experience pullbacks, and rally again, we’ll be paying attention to future pullbacks in order to get in at a favorable entry point.

Additionally, we’d like to talk about how a previous Chart of the Day stock has done…

On November 6, we highlighted The Western Union Co, (NYSE: WU), noting that it was on a bull run.

If you happened to have purchased WU shares on that day, you’d already be up 5.2%.

But… if you had purchased an option contract, you would be up 68.6% in just two days!”

That’s the power of options.

Best Regards,

Chuck Hughes
Editor, Chart Of The Day

Chuck Hughes

Written By Chuck Hughes

Before Chuck Hughes won 10 Trading Championships, he was an accomplished Air Force pilot. In fact, he credits his success as a stock and options trader to his disciplined upbringing and career. When he was deciding between a career in the Navy and a career in the Air Force, the Navy told him he’d only have a 33% chance of flying jets. The Air Force gave him 100%. He liked those odds better. 35 years ago, Chuck had a wife, a young daughter, a son on the way, and a huge mortgage to afford. He didn’t want to give up on his lifelong dream and stop flying for a major commercial airline. He knew he needed to supplement his income during the 15 days a month he wasn’t flying. So he used his experience in discipline and math, and his understanding of finance and the stock markets (which he’d always been interested in,) and opened a $4,600 trading account. He made over $460,000 in profits his first two years of trading, and he hasn’t looked back since. When he was diagnosed with Meniere’s disease 15 years later, which commonly leads to vertigo…He knew his career as a pilot wouldn’t last much longer with those odds. But he didn’t have to scurry to find another gig, or panic about how his family would eat… He’d spent the last 15 years perfecting his system and raking in cash. As an options trader, Chuck does not let his emotions get in the way of his trading strategy. He adheres to disciplined and methodical options and stock trades. Because he respects the options game so highly, and understands the true freedom that financial solvency can bring, Chuck was able to design and refine his system and win those 10 Trading Championships. Put simply, Chuck Hughes’ trading strategies work, and in all types of market conditions. They’ve worked throughout the bull, bear, and flat markets America has seen in the last 30 years. Chuck Hughes has spent that time building a reputation as one of the most trustworthy options traders in the industry. His publishing group Legacy Publishing LLC was one of the few trading groups on the planet to have correctly predicted and profited from the 2008 financial crash .As a published author 16 times over, a 10-time Trading Championship winner, and an options-trading teacher for 25 years, he’s learned to trade and teach without an ego.