Yesterday, we looked at a chart of SPDR S&P Semiconductor ETF, which has been trading in a bullish price pattern.
Today’s Chart of the Day is a Keltner Channel chart for ProShares UltraPro S&P500 (NYSE: UPRO).
UPRO seeks daily investment results, before fees and expenses, that correspond to three times (3x) the daily performance of the S&P 500 Index.
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.
This is why stocks in a price uptrend do not advance in a straight line. There are always price retracements along the way.
Below is a daily price chart for ProShares UltraPro S&P500 stock along with the three Keltner Channels (Upper, Middle, and Lower).
The UPRO daily price chart shows that UPRO is in a strong price uptrend and recently became overbought many different 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, UPRO experienced a pullback.
Yet, even though UPRO experienced the pullbacks, in all cases the stock returned to its 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 below the Upper Keltner Channel. Once the daily price is trading below the Upper Channel, it signals a buying opportunity.
If you had purchased UPRO shares when UPRO entered the “Buy Zone” around May 2nd, you’d be up 15.16% on the stock by now.
But… if you had purchased the right option contract on May 2nd, you would now be up 33.56% by now.
Knowing that UPRO 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