Tuesday, September 20, 2011

XLK Watch

The technology sector exchange traded fund XLK has pushed decisively above the 20-day Donchian price channel and also broken out of a sideways trend that has held sway since Aug. 9.

sym phase trend adx   200/50 40/10

The price began a slight pullback around noon Eastern today.

The Donchian channel breakout level was $24.80, and the sideways trend hit its second peak at that level on its second. So, third time was the charm, prompting the breakout.

Today's high (so far) of $25.29 remains short of the recent high, $26.88, set on July 26. And in fact the breakout, which first peeked beyond the price channel on Sept. 15, has been a wishy-washy affair. Today is the first of four bars to have an open and close (so far) above the price channel.

Breakouts come in two flavors.

Some fall precipitously and then bounce from a low point and begin a relentless rise that covers a lot of ground prior to the breakout. They have a lot of strength, but there's the danger that by the time breakout comes, there's little money still off the table to push the price up further.

Other move sideways for a period before shyly poking their heads above breakout line, like a prairie dog checking out the neighborhood. This sort of breakout allows the trader to catch a move early, but like a groundhog, the price is just as likely to pop back into the price channel rather than soaring up to big profits. Not to mix prairie dog and eagle metaphors, of course.

XLK is clearly a prairie dog breakout. The only way to see if it turns into an eagle it to either get in with a tight stop or wait and see.


  • phase: 20-day price channel phase, with green for bull trend, red for bear trend and yellow for neutral trend.
  • trend: Price direction, green for higher highs and higher lows, red for lower highs and lower lows, yellow for neither.
  • adx: Average directional index location, indicating the strength, or the temperature, of the trend. Orange for 40 or greater, aqua (light blue) for 25 and up but below 40, magenta (light purple) for 20 and up but below 25, and brown for anything below 20. (Mnemonic: Orange for the overhead sun, blue for the surrounding sky, magenta for sunset on the horizon and brown for the earth.)
  • 200/50: The moving average cross, green for the 50-day ma above the 200, red for below and yellow for closely aligned.
  • 40/10: The moving average cross, green for the 10-day ma above the 40, red for below and yellow for closely aligned.

About my trading methods

Read a detailed explanation of my analysis method, including trading rules.


Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.

No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decision decisions for his or her own account, and take responsibility for the consequences.

The trader’s greatest sin is inaction. Sleeper, awake! Seize the Nietzchean moment. Roll out of bed and trade.

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