Notes From The Editor

One of my favorite aspects of trading - something that took me several years to fully realize - is how much it can teach you about life. I'm talking about real life lessons and skills that come in handy every day.

Trading isn't for the weak-willed. The majority of those who attempt it, misguided by flawed assumptions and a lack of risk management, wind up losing money. It takes a certain mind-set to be consistently successful. Here are some of the key traits that spring to mind:

* Patience. Waiting for the right set-up can take time. Spending countless hours in front of stock charts just watching the bars tick by can be tedious. However, this selectiveness pays off in a big way when only trades with the highest chances for success are taken.

* Humility. It's human nature to become overly confident when you're on a win streak. Once this happens, poor risk management habits start to creep in. Inevitably your trading account will soon take a large hit - the market's way of reminding you that no one is invincible.

* Discipline. Following basic rules - religiously setting stops, using correct position sizing, satisfying certain technical conditions before entering a position, and so on - becomes second nature after enough winning trades. Until that point is reached, it takes a lot of will- power to avoid tossing those rules aside when your "gut" tells you to jump in.

* Perspective. The breathless hype generated by the stock media gives traders the illusion that every session is the most important one they'll ever take part in. Over time this notion becomes laughable. Long-term success in the market is what counts - not what happens over one day, week, or month.

I was utterly surprised to find that as I improved in each of these areas, I also found myself better equipped to deal with life in general. There's a certain natural confidence that comes with managing the challenges of trading. Here's hoping that your own journey will be as rewarding!

Here's to profits,

Kent Barton
Senior Analyst

Quick List

    
Stock     05/01     05/01      Buy      Short   Trailing Stops     Gain 
Symbol    Price      +/-      Entry     Entry   Initial/Tighten   Amount 
------  --------  --------  --------  --------  ---------------  --------

CCS       20.31     -1.11     20.82     19.21        1.61/0.81      3.52
CFG       21.42     -0.97     22.02     20.45        1.57/0.79      2.98
CRNC      20.67     -0.49     21.04                  1.88/0.94      4.42
PRSP      21.07     -0.50     21.44                  1.54/0.77      2.30

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

US stocks closed lower on Friday as earnings announcements and economic data continue to depict the striking impact of the C-19 pandemic. In equities, Apple (AAPL $289) posted profit results above expections but withheld guidance, while Amazon (AMZN $2,286) released mixed results. Economic headlines revealed manufacturing contraction intensified in April. In other news, President Trump threatened to impose new tariffs on China due to its role in the global viral epidemic. Gold and oil prices finished higher, the USD/dollar and treasury yields ended near even.

                      Friday                 On The Week      
                  --------------------   --------------------
Dow                    23,724  -622.03          -51    -0.21%
Nasdaq               8,604.95  -284.60       -29.57    -0.34%
S&P 500                 2,831   -81.72           -6    -0.21%

NYSE Volume                      4.78B                       
NYSE Advancers                     436                       
NYSE Decliners                    2534                       

Nasdaq Volume                    3.74B                       
Nasdaq Advancers                   609                       
Nasdaq Decliners                  2641                       

                                 New Highs/Lows

                   04/24  04/27  04/28  04/29  04/30  05/01
                 --------------------------------------------
NYSE New Highs        14     31     31     24     17      5
NYSE New Lows         23      9      4      4      2      5
Nasdaq New Highs      39     67     54     41     28     20
Nasdaq New Lows       23     12      8      5      7     20
   

TRADER'S TIP: "Information Overload?"

So how do we manage the huge amount of market info and other financial advice being thrown our way every day? We can filter out a lot of the useless information by asking another question; how does this specifically help me to become a more successful trader and investor? Broad generalizations are helpful to an extent, but focusing on exactly what we need can provide the high-octane fuel to accelerate our progress.

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 - 2830.71 May 1, 2020

52-Week High: 3393.52
52-Week Low: 2191.86
Daily Trend: UP
Weekly trend: DOWN
Weekly Pivot Levels
Resistance 3: 3135.56
Resistance 2: 3002.31
Resistance 1: 2916.51
Pivot: 2869.06
Support 1: 2783.26
Support 2: 2735.81
Support 3: 2602.56


NASDAQ Composite - 8604.95 May 1, 2020

52-Week High: 9838.37
52-Week Low: 6631.42
Daily Trend: UP
Weekly trend: DOWN
Weekly Pivot Levels
Resistance 3: 9490.52
Resistance 2: 9100.10
Resistance 1: 8852.52
Pivot: 8709.68
Support 1: 8462.10
Support 2: 8319.26
Support 3: 7928.84
        
Dow Industrials - 23723.69 May 1, 2020

52-Week High: 29568.57
52-Week Low: 18213.65
Daily Trend: UP
Weekly trend: DOWN
Weekly Pivot Levels
Resistance 3: 26283.52
Resistance 2: 25164.05
Resistance 1: 24443.87
Pivot: 24044.58
Support 1: 23324.40
Support 2: 22925.11
Support 3: 21805.64
 

Market Calendar

ECONOMIC REPORTS AND EVENTS (all times are Eastern):    

Monday, May 04, 2020:
04-May  10 am   Factory orders

Tuesday, May 05, 2020:
05-May  8:30 am   Trade deficit
05-May  9:45 am   Markit services PMI
05-May  10 am   ISM nonmanufacturing index

Wednesday, May 06, 2020:
06-May  8:15 am   ADP employment report

Thursday, May 07, 2020:
07-May  8:30 am   Initial jobless claims
07-May  8:30 am   Productivity
07-May  8:30 am   Unit labor costs

Friday, May 08, 2020:
08-May  8:30 am   Nonfarm payrolls
08-May  8:30 am   Unemployment rate
08-May  8:30 am   Average hourly earnings
08-May  10 am   Wholesale 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: "Volatility - Good or Evil?"

Though volatility can be a double-edged sword when trading, a few reminders will help you profit from rapid price movement during volatile periods. First of all, recall that volatility creates trading opportunities. If you focus on the short term, share prices that move by 10% in a day or two should be welcomed. Second, risk management is a must when volatile conditions prevail. Make absolutely certain that you use a pre-planned exit strategy to prevent unwanted losses. And finally, use the gap-open tactic to adjust, or help determine buy and sell points. You'll be glad you did!

Stocks Covered in This Issue

CONSUMER CYCLICAL SECTOR

Century Communities, Inc. (CCS: Consumer Cyclical/Residential Construction) - SQUEEZE PLAY. CCS is caught in a dilemma. The stock's compressed price range on Friday has resulted in a condition comparable to a wound up rubber band. We anticipate that this undecided equity will take off soon, but with the direction still in question we'll let upcoming market action tell us whether to buy shares or sell short. CCS is now at 20.31. We can capture price action either way by placing a BUY trigger at 20.82 and a SELL short trigger at 19.21. Once CCS reveals its direction, enter your triggered order and disregard the other one. As soon as your position is in place, follow up with a trailing stop of 1.61. When you acquire a 3.52 profit, tighten the stop to 0.81. Earnings Report Date: N/A. Beta: N/A. Market-Cap: 676.575M. Optionable.

FINANCIAL SERVICES SECTOR

Citizens Financial Group, Inc. (CFG: Financial Services/Banks-Regional) - SQUEEZE PLAY. When a stock's daily price range contracts to an unusually low point, you can safely assume that in most cases a breakout from that range will result in a nice price move. To capture a portion of this potential movement we have set both a long and a short entry into CFG. A move to the upside will trigger our BUY entry at 22.02, while a drop to 20.45 will trigger our SELL short entry. Follow your position with a 1.57 trailing stop. Tighten the stop to 0.79 once you have a 2.98 gain. CFG closed Friday at 21.42. Earnings Report Date: Jul 17, 2020. Beta: 1.84. Market-Cap: 9.137B. Optionable.

TECHNOLOGY SECTOR

Cerence Inc. (CRNC: Technology/Software-Application) - BULLISH BOUNCE. Some people hear of a stock that's performing nicely and then buy it without any regard for timing the entry. This approach usually leaves money on the table, money that could just as well be added to profits. The Bullish Bounce setup provides a well timed entry and reduces exposure to risk by placing both the entry trigger and exit stop near the bottom of the bounce. We have an opportunity to use this approach with CRNC which met our setup criteria on Friday. The BUY trigger for this trade is at 21.04, and the trailing stop is sized at 1.88. Resize the stop to 0.94 upon collecting a 4.42 point gain. CRNC closed Friday at 20.67. Earnings Report Date: May 07, 2020. Beta: N/A. Market-Cap: 753.184M. Optionable.

Perspecta Inc. (PRSP: Technology/Information Technology Services) - BULLISH BOUNCE. Entering a position in the early stages of a bounce is great way to get on board an up-trending stock. The "Bullish Bounce" setup identifies probable candidates by evaluating the trading action that takes place near support levels. PRSP's behavior on Friday could very well be a sign that a new bounce is underway. Place a BUY trigger at 21.44. In the event your trigger is met, also place a 1.54 trailing stop which can be trimmed down to 0.77 when you have a 2.30 profit. PRSP closed Friday at 21.07. Earnings Report Date: May 21, 2020. Beta: N/A. Market-Cap: 3.402B. 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.

Trader's Corner

Practice Your Exit Strategy

It's easy to get into the market, but what about getting out? Most traders don't have an exit plan, whether their positions are turning a profit or going down in flames. The truth is that a good exit will save your neck on a bad entry, and keep you in the game longer than good stock-picking.

Exit planning must deal with the good, the bad and the ugly. In other words, keep a profit protection strategy to exit winning trades, a stop loss strategy to get out of bad ones and a fire drill in case disaster strikes. You'll need all three tactics in every trade, because anything can happen once you hit the order button.

Your holding period guides the profit side of the exit equation. Always seek the reward target that matches your time in the market. In other words, trade the most profitable move from your entry to the target within the time frame that you're long or short the stock. This lets you apply both a time- and a price-based exit strategy to your winners.

A time-based exit strategy requires little interpretation. Focus on your holding period's time window rather than the price action. Exit the trade immediately when price hits the reward target at the right time. Exit the trade before price hits the reward target if the window starts to close. The trick with time-based strategies is to look for the best price available within the chosen window.

Most traders should start with a price-based exit strategy. For example, you enter a long position, and it moves into a profit. It rallies at a moderate pace and hits your reward target within the holding period. You exit the trade "blind" at the reward price. This means you take the money and go, without considering the current price action.





You've just taken a nice profit in a perfect world, but how do you protect yourself in the real one? Start by focusing on trends within shorter-term time frames. For example, when trading a daily chart, manage profit and loss using a 60-minute chart whenever possible. The shorter-term pattern will tell you when to move the stop in order to protect profits, or when to exit the trade entirely.

Let's outline common stages for a long position that eventually reaches the reward target:

Price moves into a profit. Price reaches first resistance, and reverses. Price finds support and rallies through first resistance.

This action/reaction continues until price reaches the target. In this scenario, trade management requires a breakeven stop as soon as price moves into a profit. This stop should be moved up after the first reversal, but stay below short-term support. When price finally rallies above first resistance, move the stop just below this new level. Continue the process until the position hits the reward target.



Profits are nice, but many trades go haywire right away. The exit strategy is very simple in this situation: get out as soon as price breaks support on a long trade, or resistance on a short sale. This may sound simple, but there are two problems. First, many of us lack the discipline to take losses when they should be taken. Second, many of us don't understand how to place stop losses in the first place.

Take your loss when the market says you're wrong. Every setup has a trigger that violates the pattern you intend to trade. Identify this price in advance, and place your stop just behind it. Remember that this magic number changes dynamically with each new bar, so you need to adjust it often. But don't remove it under any circumstances.

Do you get frustrated because your stops get hit frequently on good trades? The fault lies in your analysis and trade management, not in the stops themselves. Many traders believe they can improve their performance by placing stops where they shouldn't go. Every stock will violate support/resistance up to a point before reversing. Your analysis must consider the stock's underlying volatility, so the stop can be placed outside this "market noise."



Finally, you need a way to deal with unexpected bad news. Start with a panic drill, and practice it over and over again in your head. The exit strategy is simple: If you can beat the rest of the crowd out of the door, act immediately. The after-hours market can save you a fortune if you learn to use it wisely. If you can't escape right away, watch price action closely and take your best shot. The market can do anything it wants once bad news hits, and you may need to accept a large loss.

Sudden losses are a cost of doing business as a trader. Full disclosure rules and external events will impact your bottom line from time to time. Reduce your risk by choosing lower-volatility stocks to carry over longer time periods. Avoid holding anything through earnings reports or terrorist threats. Remember, it's not hard to rebuild profits after the unexpected takes a bite out of your bottom line.

********************

"Practice Your Exit Strategy" was written by Alan Farley, author of "The Master Swing Trader." To order a copy of Alan's popular book, please go to http://www.invest-store.com/rightline/.

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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