The broader market has been firmly in the red this past year. But one sector has held up relatively well…
Throughout 2022 and into this year, the Utilities Select SPDR Fund (XLU) has traded in a well-defined sideways range.
Even just recently, XLU was trading within a dollar of where it was a year ago.
This kind of rangebound pattern might put some people off. But for traders, it can often provide plenty of opportunities.
Within its sideways pattern, XLU has seen decent, tradeable swings.
And with XLU nearing the bottom of its trading range, today we’ll check out potential trades from here…
Trading Within a Definable Range
In the chart below, you can see XLU’s sideways pattern…
The red line shows its median price. And the upper and lower blue lines show its upper and lower trading range.
These blue lines represent two standard deviations of price data. That means that 95% of the price action occurs within these two lines…
Utilities Select SPDR Fund (XLU)
Source: eSignal
Given the mean reversion strategy I use for my trading, this channel offers a handy piece of information…
When XLU hits either of these two blue lines, then there’s a high probability of it reverting.
You can see where that happened at ‘1,’ ‘2,’ and ‘3,’ on the chart. However, in the third case, XLU bounced around the lower level for some time before it reversed and trended higher.
Although these trading levels are useful, they’re not something that you should use alone.
One indicator that can improve your chances of trading success is the Relative Strength Index (RSI).
The RSI helps identify when a stock is overbought or oversold and is likely to head back the other way.
By combining the two indicators, we can improve our chances of making the right call.
XLU’s reversals at ‘1,’ ‘2,’ and ‘3’ coincided with the RSI forming a ‘V’ (or double ‘V’) from oversold territory (lower grey dashed line).
Take another look at the chart…
Utilities Select SPDR Fund (XLU)
Source: eSignal
The RSI rebounded higher while XLU bounced off its lower level. This provided the setup for a potential long trade.
Now the RSI is closing in on oversold territory and XLU is trending toward the lower blue line (‘4’). So what can we expect from here?
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Putting the Odds in Your Favor
Over the coming days, I’ll be closely watching the RSI…
Recently, the RSI has touched the oversold line (bottom right circle). However, it’s important to note that this is not enough to trigger a potential long trade by itself.
Instead, we must wait for the RSI to form a ‘V’ and track higher before considering a trade.
I’ll also be watching XLU’s price action to see if it touches the lower blue line.
If XLU reverses higher from the lower blue line – and the RSI rebounds higher – then that’ll dramatically increase our chances of making a profitable long trade.
Regards,
Larry Benedict
Editor, Trading With Larry Benedict
P.S. After a truly rough 2022, it might be tempting to think the worst is over in the markets. But the bumpy start to 2023 should start to tell you it’s not that simple…
In fact, many times after a crash, the market goes through “shockwaves” sometimes for years – or even over a decade. This high volatility can be difficult to stomach if you’re a buy-and-hold investor.
But if you’re a trader… these moments can be a boon – if you know how to trade them.
And over my 35-year Wall Street career, that’s exactly what I learned how to do.
That’s why I’m preparing my Shockwave Summit on March 8 at 8 p.m. ET. There, I’ll explain my strategy… including the specific ticker I use.
And I’d urge you not to miss out… because I see one shockwave coming on March 17 that could double your money if you’re prepared ahead of time.
To RSVP for the summit with one click, just go right here.
Reader Mailbag
In today’s mailbag, One Ticker Trader members share their positive experiences with Larry’s trading expertise and recommendations…
I sure do appreciate your time, talent, and willingness to share what you’ve learned through the years to help us little guys! Thanks so much!
– Leahmary P.
Hi Larry! I just want to thank you for writing so clearly and not leaving us newbies in the dust. I just finished reading your special reports on “The One Ticker Retirement Plan” and “Larry’s Guide to Options”. Your teaching is great and I’ll pay close attention!
– DiAnne I.
Thank you, Larry. I got out of SPY calls at the peak.
– Ronald W.
Thank you for your thoughtful comments. We look forward to reading them every day at [email protected].