Notes From The Editor

Common Trading Mistakes...And How to Avoid Them (Part I)

One of the basic building blocks of successful trading is the stuff you don't do. While best practices such as stop-loss placement and effective risk management sharply improve your ability to grow your trading account, there are also several potential pitfalls to watch out for.

Over the coming weeks we'll take a closer look at several of these trading traps. Let's start by looking at three mistakes that are especially prevalent in the modern age of non-stop, on-demand information.

Mistake #1: Trading stocks that are hyped on message boards and spam emails.

The promise can see be so alluring. A gang of excited traders pumps up a stock on a message board or email, calling for a large move within the near future. Then, over the next few sessions the ticker actually starts to do what they said it would. You jump on the following day, only to have the position dramatically reverse course.

This "pump and dump" is a classic scheme that has continued unabated in the Information Age. However, you can easily avoid this trap by simply ignoring those hype-filled message boards, and by sending those spam emails straight to the delete folder. Also be weary of stocks that trade on very light volume; scheming traders find it much easier to push around low-volume equities.

Mistake #2: Falling in love with a "story."

The stock media loves to shape conventional wisdom. However, this doesn't always match what's really happening in the market. Imagine, for instance, that you turn on the TV and see a report on how stock prices will head lower over the next week. Your favorite mainstream Wall Street websites say the same thing.

Could those reports be right? Absolutely. But before you commit yourself to the story that's being written by the media, verify it with your own knowledge and tools. Do the technicals support the outlook for more weakness? Or are they deeply oversold and ready for a bounce? Trade based on what you see - not on what the media tells you.

Mistake #3: Overloading your screen with too many indicators.

Another classic mistake: analysis paralysis! Technical indicators are a wonderful thing, and a well-groomed daily chart can provide an excellent roadmap to likely price movements. The problem occurs when the chart starts to look more like an overgrown garden, with moving averages, indicators, and numbers creating confusion and contradictions.

The remedy for this mistake is to keep it simple and focused. Use only the technical indicators that you feel most comfortable with. If you're thinking about adding a new indicator to your line-up, give it a trial period first to see if it fits into your current strategy.

Additionally, remember that basic analyses of price action - moving averages and trendlines, for example - tend to be more effective than more obscure indicators. The reason is simple: more market participants watch the price action, and act accordingly.

Here's to profits,

Kent Barton
Senior Analyst

Quick List

    
Stock     05/12     05/12      Buy      Short   Trailing Stops     Gain 
Symbol    Price      +/-      Entry     Entry   Initial/Tighten   Amount 
------  --------  --------  --------  --------  ---------------  --------

CCS       22.95     -0.36     24.01     21.98        2.03/1.01      3.10
CVI       21.07     -0.09     22.21     20.29        1.92/0.96      3.22
AMK       23.41     -0.66     24.40     22.59        1.81/0.91      3.46
GKOS      37.94     -1.24     39.90                  3.80/1.90      3.82

The "Quick List" provides a brief summary of each stock write-up and should be taken in the context of the related write-up presented in the "Stocks Covered in This Issue" section of this Report.

Be sure to read "How To Use The RightLine Quick List" and always use the RightLine Risk Control Calculator before entering any position. For access to the Risk Calculator, go to http://www.rightline.net and login to the Member's area.

For more on controlling risk go to the RightLine Risk Control System

For a glossary of terms unique to The RightLine Report go to: Glossary

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Market Summary

Stocks closed lower on Tuesday despite the Federal Reserve Bank starting purchases of corporate bond ETFs and a proposal of another relief bill in the US House of Representatives valued at $3-Trillion. In equities, General Mills (GIS $63) announced stronger-than-expected guidance, while PNC Financial Services Group (PNC $100) reported that it intends to sell its near $17.0 billion stake in BlackRock (BLK $454). The treasury yields and the USD/dollar dropped after economic headlines featured a less than expected decline in small business optimism and a record plunge in core consumer price inflation. Oil and gold prices finished higher.

                        May 11, 2020           May 12, 2020   
                  --------------------   --------------------
Dow                 24,221.99  -109.33        23,765  -457.21
Nasdaq               9,192.34   -71.02         9,003  -189.79
S&P 500              2,930.19    -0.39         2,870   -60.20

NYSE Volume                      3.62B                  5.32B
NYSE Advancers                   1,007                    679
NYSE Decliners                   1,913                   2263

Nasdaq Volume                     3.8B                  4.43B
Nasdaq Advancers                 1,483                    882
Nasdaq Decliners                 1,788                   2384

                                 New Highs/Lows

                   05/05  05/06  05/07  05/08  05/11  05/12
                 --------------------------------------------
NYSE New Highs        23     24     27     31     34     36
NYSE New Lows          7     19     15      6     14     25
Nasdaq New Highs      47     61     66     87    119    116
Nasdaq New Lows       15     32     14     11     15     43
   

TRADER'S TIP: "When Your Indicators Contradict The Trend"

Due to their overly sensitive nature, some technical indicators will turn in one direction while the price trend remains in the other. A rule of thumb - whenever a price trend and indicators are in conflict, always go with price until the trend is broken.

The Technical Analyst

For help with this chart, be sure to read "Understanding The Importance Of Support And Resistance"
and "Boost Your Profits With Moving Averages".

S&P 500 - 2870.12 May 12, 2020

52-Week High: 3393.52
52-Week Low: 2191.86
Daily Trend: UP
Weekly trend: UP
Weekly Pivot Levels
Resistance 3: 3155.22
Resistance 2: 3020.91
Resistance 1: 2975.35
Pivot: 2886.60
Support 1: 2841.04
Support 2: 2752.29
Support 3: 2617.98


NASDAQ Composite - 9002.55 May 12, 2020

52-Week High: 9838.37
52-Week Low: 6631.42
Daily Trend: UP
Weekly trend: UP
Weekly Pivot Levels
Resistance 3: 10104.67
Resistance 2: 9516.52
Resistance 1: 9318.92
Pivot: 8928.37
Support 1: 8730.77
Support 2: 8340.22
Support 3: 7752.07
        
Dow Industrials - 23764.78 May 12, 2020

52-Week High: 29568.57
52-Week Low: 18213.65
Daily Trend: UP
Weekly trend: DOWN
Weekly Pivot Levels
Resistance 3: 25991.60
Resistance 2: 25002.86
Resistance 1: 24667.09
Pivot: 24014.12
Support 1: 23678.35
Support 2: 23025.38
Support 3: 22036.64
 

Market Calendar

ECONOMIC REPORTS AND EVENTS (all times are Eastern):    

Monday, May 11, 2020:
11-May          None scheduled

Tuesday, May 12, 2020:
12-May   6 am   NFIB small-business index
12-May  8:30 am   Consumer price index
12-May  8:30 am   Core CPI
12-May   2 pm   Federal budget

Wednesday, May 13, 2020:
13-May  8:30 am   Producer price index

Thursday, May 14, 2020:
14-May  8:30 am   Initial jobless claims
14-May  8:30 am   Import price index

Friday, May 15, 2020:
15-May  8:30 am   Retail sales
15-May  8:30 am   Retail sales ex-autos
15-May  8:30 am   Empire state index
15-May  9:15 am   Industrial production
15-May  9:15 am   Capacity utilization
15-May  10 am   Job openings
15-May  10 am   Consumer sentiment index
15-May  10 am   Business inventories



For a chart of typical Up or Down market reactions to specific major US economic reports 
go to:  Economic Indicator Effects

TRADER'S TIP: "Four Cornerstones of Successful Trading"

The four primary objectives of a Trader are to:

1. Clearly define how you see the market.

2. Know under what circumstances you will enter it.

3. Determine in advance what has to happen for you to accept that your trade is or isn't working.

4. Know when to exit your position.

Stocks Covered in This Issue

CONSUMER CYCLICAL SECTOR

Century Communities, Inc. (CCS: Consumer Cyclical/Residential Construction) - SQUEEZE PLAY. Tuesday's trading session left CCS in a very narrow price range after buyers and sellers fought to a near stalemate. Both sides are looking for some traction, and a breakout either way could provide a nice gain in the short term. To get aboard, set your BUY trigger at 24.01 and your SELL short trigger at 21.98. One of the orders will be triggered by upcoming price action. When your market order is filled, cancel the remaining trigger and enter a 2.03 trailing stop. Once you have a 3.10 profit, reduce the stop to 1.01. Earnings Report Date: N/A. Beta: 1.83. Market-Cap: 764.981M. Optionable.

ENERGY SECTOR

CVR Energy, Inc. (CVI: Energy/Oil & Gas Refining & Marketing) - SQUEEZE PLAY. The ticker for Tuesday's session shows CVI is now stuck in a tight price band. With the cyclical contraction and expansion nature of volatility in force, we should see a new period of price expansion in the days ahead. To improve the odds of catching the next directional wave, place a BUY trigger at 22.21 and a SELL short trigger at 20.29. When CVI starts moving out of its narrow range, your order will be triggered. Once you're in the trade, cancel the opposing trigger and set a 1.92 trailing stop. Upon reaching a 3.22 profit, resize the stop to 0.96. Earnings Report Date: Jul 22, 2020. Beta: 2.00. Market-Cap: 2.118B. Optionable.

FINANCIAL SERVICES SECTOR

AssetMark Financial Holdings, Inc. (AMK: Financial Services/Asset Management) - SQUEEZE PLAY. AMK is stuck in a Bull/Bear deadlock. Fortunately for traders this impasse should be resolved soon, with one side or the other taking control. We want to be positioned for a potential quick move up or down, so get ready to catch this train with a BUY entry at 24.40 and a SELL short entry at 22.59. Once your trade is filled, enter a 1.81 trailing stop. Tighten it to 0.91 after a 3.46 gain. AMK closed on Tuesday at 23.41. Earnings Report Date: N/A. Beta: N/A. Market-Cap: 1.695B. Not Optionable.

HEALTHCARE SECTOR

Glaukos Corporation (GKOS: Healthcare/Medical Instruments & Supplies) - BULLISH BOUNCE. Here is another example of a stock in an established uptrend that has recently experienced a counter-trend drop. The sliding price action has now found support near a moving average zone, bouncing upward during Tuesday's session to close at 37.94. Anticipate the rebound to continue, and be ready to buy GKOS at 39.90. Follow your entry with a trailing stop of 3.80 which can be tightened to 1.90 on a 3.82 profit. Earnings Report Date: Aug 05, 2020. Beta: 1.78. Market-Cap: 1.678B. Optionable.

IMPORTANT: Before entering any positions, always use the Risk Control System to determine the level of acceptable risk and the maximum number of shares to buy. Use Gap Adjusted Entries to reset the Entry Price for stocks that gap beyond recommended entry levels.

Stock Splits

Below are the stocks that have announced splits and have recently executed or will execute soon. There is generally a return to normal price behavior in the weeks following a split announcement in what we call a "Dormancy Phase." As the stock nears its split execution date (Effective Date) it often moves into the "Pre-Split Run" stage where quick and sometimes dramatic gains can occur.

                             Announce     Eff.       Split
Company Name     (Symbol)      Date       Date       Ratio   Options  
---------------- -------     --------    -------     ------  -------   

Currently there are no upcoming stock splits on the major US exchanges.
    

Split details are also available online at the RightLine Online Stock Split Calendar. For a detailed look at the different stages of a Stock Split, Click Here.

A simple yet powerful tool, the Risk Control Calculator helps you manage risk by recommending a maximum number of shares to purchase. Available to all RightLine subscribers. For access, go to http://www.rightline.net and login to the Member's area.

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