Here’s today’s technical lesson…one of the finer points you might never hear of anywhere else, and I am going call it ” Ol Man River ” as found on stock charts. This article is about the finer points with the technical tools in charting known as the Bollinger Bands and the Keltner Channels.
Allow me to digress: I was having lunch with one of my adult children recently, and we were talking about the original Showboats that once filled the rivers of America, and we got to talking about the famous musical known as Showboat...and that ” O’ man river “…
There’s a famous song by the Jazz era song duo, Jerome Kern and Oscar Hammerstein III, associated with that muscial, and the lyrics go like this….
“O’ man river,
Dat ol’ man river,
He mus’know sumpin’
But don’t say nuthin’
He jes’ keeps rollin’
He keeps on rollin’ along.
Well, this gave me the idea that I have been trying to come up with for a TECHNICAL PHENOMENON that I often find occurring on the charts…
On my charts, I frequently show the Bollinger Bands or Keltner Channels (or both) in the AREA setting…the AREA setting creates sort of a channel view that shows the highs and lows as well as the direction of price over time…most of the time, price stays within the channel…and sometimes, I jokingly call this channel “the RIVER” because it sorta looks like a river or stream…
Well, here I am today looking at the RVLT daily chart….I was trading this stock several months ago, but without much success…I gave up on it, but I kept a chart going over time to see how it would play out…
At any rate, RVLT’s chart provides a good example of why it pays to avoid stocks that spend a lot of time in the lower part of the channel (unless, of course, you are shorting them)…
So, in the case of RVLT, it showed signs of finally coming out of the doldrums from about mid-April to mid-June…and notice that during that time, the price spent most of the time in the upper part of the channel (on the smooth sailing side of “the river”), which was positive action. But then on Friday, June 23rd, the price accelerated higher on heavy volume, and then a lot of profit takers stepped in and the price finished well off the highs! The candle resembled a shooting star-like candle on June 23rd and that candle was “shouting out” that it was time to exit this stock. Then, the selling continued the following Monday with a big ol’ red candle!
So, price moved back into the lower channel (an ominous sign), but then struggled to get back up into the upper channel about the time that a Golden Cross (50-200 up-cross) occurred. So shortly after this seemingly bullish moment, the price topped as it formed a lower high and the start of a Descending Triangle…then the price rallied again to try to clear the 50 MA line, but it failed and was contained by the 50 line and went back down into the lower part of channel ( “the rough waters of the river” )…often on my daily charts, the lower part of the channel is below the 13 EMA line (and often under the 20 line)….this again, is not the time to be holding a long position for more than a day or two….
So, in summary, the channel of the Bollingers Bands or the Keltner Channels form what looks like a river on the chart, and the price typically flows between the shoreline of these channels. So, like the Showboat tune says, “O’ Man River must know sumpin'” …because “he keeps on rolling along.” That river is a powerful force, and it must be respected…and so it is when you see this river on your charts.
So, what happened to RVLT once its price fell back into the rough water side of the River? Well, in the first week of August 2018, it RVLT lost control on that river and ship-wrecked outside of the lower side of the river! So O’ Man River was warning investors to pay attention, but how many did?