On Friday, we looked at a Keltner Channel chart of iShares U.S. Home Construction ETF, which has been on a pullback from being overbought.
Today’s Chart of the Day is a Daily Price chart for Technology Select Sector SPDR (NYSE: XLK).
But before we get into what the chart signifies for XLK…
I’d like to take a moment and say thank you for all of the feedback we’ve been getting!
And today, I’m going to address a concern sent in from one Chart of the Day reader.
Steve S. says:
You just sent a Chart of the Day for RH. If I use the 1% rule, I would be looking at a January 2020 $125 call that currently has an asking price of $51. So one call would cost $5,100, which is more than my account value (or the amount you started with years ago).
I can totally understand where Steve S. is coming from.
Yes, RH is a very high priced stock trading at $175. Smaller accounts would not be able to purchase an in-the-money option for RH.
But not all options are priced this high. In fact, readers of my PowerTrend Options service had the chance to enter four options trades with an average cost of $1,002 per option contract. So a smaller $5,000 account would be able to trade about 5 options in different sectors. That’s a good start, whether you’re a beginning or experienced trader.
If you want to learn more about PowerTrend Options, where I recommend two options trades each week, click here.
Either way, it’s good to know that the readers of this e-letter are taking risk management into consideration, and being careful about which trades they choose to enter.
Now, let’s get back to XLK…
XLK seeks investment results that, before expenses, correspond generally to the price and yield performance of publicly traded equity securities of companies in the Technology Select Sector Index.
Now, the chart below shows that XLK has been making a series of 52-Week Highs for the last year.
Stocks just don’t hit 52-Week Highs for a whole year unless they’re in a very powerful uptrend.
We know that stocks in a price uptrend do not advance in a straight line…
And that there are always price retracements along the way…
Looking at the chart, we can see that XLK has experienced periodic price pullbacks since last November.
Traders can get a lower risk entry point after a 3 to 5% price retracement, as the stock normally resumes its price up trend after such retracements.
We’ll be sure to keep checking XLK stock as it climbs to new heights, and noting any price retracements.
In fact, in the PowerTrend Options service, we recommended a buy on XLK several weeks ago. If you had gotten into the right option contract two weeks, you’d be up 34.3% already!
That’s the power of options.
Editor, Chart Of The Day