“Buy Zone” Detected in Pharma Co.

On Friday, we looked at a Daily Price Chart of the Technology Select Sector SPDR ETF, noting the ETF has been making a series of new 52-Week Highs.

Today’s Chart of the Day is a Keltner Channel Chart for Vertex Pharmaceuticals Inc. (NASDAQ: VRTX).

Vertex Pharmaceuticals Inc. develops and commercializes therapies for treating cystic fibrosis. The company markets SYMDEKO/SYMKEVI, ORKAMBI, and KALYDECO to treat patients with cystic fibrosis who have specific mutations in their cystic fibrosis transmembrane conductance regulator gene.

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.

Again, 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 Vertex Pharmaceuticals Inc. along with the three Keltner Channels (Upper, Middle, and Lower).

The VRTX daily price chart shows that VRTX is in a strong price uptrend and recently became overbought many times as the stock traded above the Upper Keltner Channel (circled in blue). As you can see, after trading above the Upper Channel, VRTX experienced a pullback.

Yet in all cases where VRTX experienced the pullbacks, the stock always continued to 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 VRTX shares when VRTX entered the “Buy Zone” around February 13, you’d be up 22.64% on the stock by now.

Knowing that VRTX 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.

Best Regards,

Chuck Hughes
Editor, Chart Of The Day

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