by Shane Ormond
On Jan 21, 2020
Now that the Chinese factory is complete (and just in time for a deadly virus outbreak), self-proclaimed “Buff Mage” Elon Musk is turning his attention to Germany, where colonies of bats and unexploded World War II bombs threaten to undermine investor confidence. (Those are not metaphors.)
Yesterday, we looked at a monthly chart of ANSYS, Inc., noting the stock has been on a bullish run since February.
Today’s Chart of the Day is a Keltner Channel Chart for Morgan Stanley (NYSE: MS).
Morgan Stanley, a financial holding company, provides various financial products and services to corporations, governments, financial institutions.
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. (Not a great time to buy.)
When a stock becomes overbought, it normally declines in price as the inevitable profit taking occurs, proving that stocks in a price uptrend never advance in a straight line.
Below is a Daily Price Chart for Morgan Stanley along with the three Keltner Channels (Upper, Middle, and Lower).
The MS Daily Price Chart shows that MS is in a strong price uptrend and recently became overbought many 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, MS experienced a pullback.
But you can see that every time MS experienced the pullback, it returned to its former rally.
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 MS shares when MS entered the “Buy Zone” around December 3rd, you’d be up 7.23% on the stock by now — in a little over a month.
Knowing that MS 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.
Maximizing Our Profit Potential
Additionally, we’d like to talk about how a previous Chart of the Day stock has done…
On December 17th, we highlighted Direxion Daily Semiconductor Bull 3x Shares (NYSE: SOXL), noting that SOXL had been on a bullish run after making a series of 52-week highs.
If you happened to have purchased SOXL shares on that day, you’d already be up 8.24%.
But… if you had purchased the right option contract, you would be up 37.14% in just over three weeks’ time!
That’s the power of options.
Editor, Chart Of The Day