Sometimes it’s helpful to look at one indicator at a time, and we can do that with our special “Color Keltner Channel” Chart – as seen on the S&P 500 and NASDAQ indexes.
Let’s take a look at where price trades relative to the Keltner Channel sand what message this activity sends to the market.
We’ll start with the S&P 500:
Keltner Channels plot two ATRs – Average True Range values – above and beneath the midpoint or 20 period moving average.
While Bollinger Bands reflect standard deviation, Keltner Channel bands reflect a slightly different measurement of volatility over time.
Nevertheless, the logic is roughly the same in that pushes (or touches) of one Keltner Channel extreme tends to result in a quick reversal or retracement down against the band.
I highlighted instances where price pushed and closed BEYOND the Keltner Channel.
For reference, I’m plotting a 2.5 ATR band (black line).
The main idea here is that price pushed up off the lower Keltner Channel into the upper channel without stopping.
I suggest you compare the current action specifically with February’s bullish non-stop action and then to a lesser extend with that of April.
This is just another way to show what I’ve been highlighting for you in the prior updates:
We can see the same type of pattern playing out in the NASDAQ:
Notice how the NASDAQ is squeezed into the upper Band – similarly, you can chart prior examples of tests (touches) of the upper band.
While price could squeeze a bit higher as it did at the end of February 2014 (and June), do keep these levels in mind as you consider the new landscape for risk/reward management at fresh new highs.
Corey Rosenbloom, CMT
Afraid to Trade.com
Follow Corey on Twitter: http://twitter.com/afraidtotrade