Keltner Channels

Post #252 March 7, 2012

With a DOWNTRENDING stock or index, the stock/ index will move from the BOTTOM of the keltner to the MID POINT of the keltner which is the dotted line and is the SECOND number showing in the bracketed numbers on the left of the chart right next to “kelt” – the FIRST number showing there is the bottom of the keltner and the THIRD number showing is the TOP of the keltner. These numbers are also showing on the RIGHT side of the chart right next to the green lines of the keltner channel itself.

So, a DOWNTRENDING stock or index will move from the BOTTOM of the keltner to the MID keltner and then sell back down again to the bottom of the keltner and then go back up again to the mid of the keltner and then sell back down to the bottom of the keltner etc etc – a stock or index will continue this kind of price action UNTIL the stock or index starts going in to an UPTREND – so, in an uptrend, the stock will move to the TOP of the keltner and then on sell offs will only move down to the mid of the keltner and then go back up again to the top and then back down again to the mid keltner and then back up to the top – etc etc. – and it will do this until that uptrend turns in to a downtrend – and it usually tells us it’s now in a downtrend by it falling BELOW the mid point of the keltner and going ALL THE WAY DOWN to the BOTTOM of the keltner.

A stock may not get to the TOP OR to the BOTTOM of the keltner though for uptrends and downtrends as the stock could get stopped along the way by resistance at the top going up or at support on the stock/ index coming down in price. TRP.TO is a god example as the top of the keltner is at $43.03 BUT there was resistance at around $42.00 and that is where TRP.TO got stopped at yesterday before it started coming down. Look at TRP.TO on the chart to see what I’m referring to with the keltner and those price points:

http://stockcharts.com/h-sc/ui?s=TRP.TO&p=D&b=5&g=0&id=p48945226750

Now, I don’t just use the keltner all by itself to tell me if a stock is overbought and looking to come down OR is oversold and is now looking like it will go higher in price! The keltner is but ONE indicator I use (albeit, it’s the BEST ONE in my opinion and experience of it) – I also use Full stochastics (found at the BOTTOM of the chart above) and RSI (found at the TOP of the chart of TRP). Overbought on stochastics is the black line crossing above the 80 horizontal line on the chart – you can see this very clearly on the chart and can see the value of the stochastics line on the RIGHT side of the chart – and oversold on stochastics is BELOW the horizontal 20 line on the chart – so, the black line going below 20.

Here’s the SPX that shows we went to the BOTTOM of the keltner last week when we got to 1100 and the MID POINT of the keltner (the DOTTED GREEN LINE) was at 1216 – and we ALMOST made it there BUT the SPX had resistance at 1200 and so we got just above that level this week at 1205 and then we now are coming down from there as the resistance there was just too strong to take us any higher right now. So, the SPX looks like it may be heading back down to the bottom of the keltner which is currently at 1113 – BUT, stocks and indexes like to test prior lows before they head higher OR go much lower – so, even though the bottom on the keltner is showing at 1113, the SPX will most likely be going towards its recent low of 1100 to test there and see if it holds. If it breaks, its next support is at 1096, then 1075, and then there’s BIG SUPPORT at 1050. Here’s the chart of the SPX so you can see too:

http://stockcharts.com/h-sc/ui?s=$SPX&p=D&b=5&g=0&id=p64728745078