Yesterday, we looked at a Daily Price Chart of Fastenal Co., noting the stock’s 12/26 Day Moving Average Convergence/Divergence (MACD) line is above the 9-Day EMA signaling a bullish stock.
Today’s Chart of the Day is a Keltner Channel chart for MACOM Technology Solutions Holdings, Inc. (MTSI).
MTSI designs and manufactures analog radio frequency (RF), microwave, millimeterwave, and lightwave spectrum products in the United States, China, the Asia Pacific, and internationally.
The company offers a portfolio of standard and custom devices, including integrated circuits, multi-chip modules, power pallets and transistors, diodes, amplifiers, switches and switch limiters, passive and active components, and subsystems.
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, let’s look at a daily price chart for MTSI along with the three Keltner Channels (Upper, Middle, and Lower).
The MTSI daily price chart shows that MTSI 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, MTSI experienced a pullback.
Yet in all cases where MTSI 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 MTSI shares when MTSI entered the “Buy Zone” around April 21, you’d be up 79.5% on the stock by now.
Knowing that MTSI 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