Yesterday, we looked at a monthly chart of Adobe Systems, Inc., noting the stock has been on a bullish run since January.
Today’s Chart of the Day is a Keltner Channel chart for Moody’s Corp. (NYSE: MCO).
Moody’s Corp. provides credit ratings and assessment services; and credit, capital markets, and economic research, data, and analytical tools worldwide. It operates through two segments, Moody’s Investors Service and Moody’s Analytics.
The Moody’s Investors Service segment publishes credit ratings and provides assessment services on various debt obligations and entities that issue such obligations, such as various corporate and governmental obligations, structured finance securities, and commercial paper programs.
The Moody’s Analytics segment provides economic research regarding risk, finance modeling, consulting, software services, and more.
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.
As such, stocks in a price uptrend do not advance in a straight line. There are always price retracements along the way.
With that knowledge in mind, that’s look at a daily price chart for Moody’s Corp. along with the three Keltner Channels (Upper, Middle, and Lower).
The MCO daily price chart shows that MCO is in a strong price uptrend and recently became overbought several 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 scenarios, MCO experienced a pullback.
Yet in all cases where MCO experienced the pullbacks, the stock always continued to rally afterwards.
Identifying a Low-Risk Entry Point
So… 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 MCO shares when MCO entered the “Buy Zone” around May 1, you’d be up 19.13% on the stock by now.
Knowing that MCO 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.
Editor, Chart Of The Day