May 26, 2020 - The RightLine Report
Notes From The Editor
Common Trading Mistakes...And How to Avoid Them (Part III)
In recent Reports we've looked at potholes and traps that can wreak havoc on even the most carefully-formulated trading strategies. Here are three more common mistakes for your consideration.
Mistake #6: Trading stocks like you're gambling in a casino
On the surface, trading and gambling seen to have a lot in common. You risk money to make money. Sometimes you're lucky, sometimes you're not. Occasionally you'll find yourself on a hot streak or losing streak. But dig deeper, and you'll find that Wall Street is a far cry from Vegas.
The most important difference? When trading, the only "house" advantage is the commission you pay your brokerage. The odds aren't inherently stacked against you. But traders sometimes make the mistake of being haphazard with their choices; they throw their money at a stock without really taking the time to think it through, or without using risk management techniques. This approach might work okay at the craps table, but it's ill-suited to trading.
Mistake #7: Averaging down
This goes hand-in-hand with a mistake we covered last week: holding on to losing positions. This trap is easy to fall into unless you have some serious discipline. It's human nature to look for the silver lining in a bad situation. But if you're holding a losing position, buying more shares at a cheaper price is rarely a good option.
Think of it this way: if the stock is already heading the opposite direction, then it's not behaving the way you thought it would. Something is amiss. Buying more shares and averaging down will only compound your losses if the equity continues to go against you. The better approach is to keep your original stop in place, and focus your resources on finding promising set-ups somewhere else.
Mistake #8: Overtrading
Constant trading can be tempting because you're more likely to hit a nice winner. However, you'll also be more likely to throw caution to the wind and be less selective when finding potential trades. And boy oh boy, do brokerages love this mistake; commissions can add up fast when you're overtrading, eating away at any profits you may have accumulated.
Frantic trading may be the bread-and-butter of daytraders, but it's ill-suited to those who use a longer timeframe. The better approach is to be picky, trading only when a stock meets your requirements. Also remember that sometimes - especially in a sideways or extremely choppy and unpredictable market - staying on the sidelines is the best option.
Here's to profits,
Kent Barton
Senior Analyst
Stocks Covered Today...Stock Splits...
Quick List
Stock 05/26 05/26 Buy Short Trailing Stops Gain
Symbol Price +/- Entry Entry Initial/Tighten Amount
------ -------- -------- -------- -------- --------------- --------
BOOT 21.86 0.92 23.00 20.61 2.39/1.20 2.36
WYNN 84.89 6.64 87.29 78.89 8.40/4.20 10.04
CGC 20.01 0.59 21.19 19.25 1.94/0.97 1.82
CYRX 23.10 0.37 23.66 21.48 2.18/1.09 2.38
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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Stocks Covered Today...Stock Splits...
Market Summary
Traders returned to work on Tuesday from the Memorial Day holiday weekend and proceeded to continue last week's rally. The Health Care sector offered potential optimism in response to the C-19 pandemic, with positive announcements from Novavax (NVAX $48) and Merck & Company (MRK $77) helping to soften worries regarding the duration of the severe drop in global economic activity. The USD/dollar and gold prices fell, while oil prices and treasury yields rose. Economic news included Consumer Confidence moving up from multi-year lows, and new home sales unexpectedly stepping higher, plus improvements in regional manufacturing activity and an increase in home prices.
May 25, 2020 May 26, 2020
-------------------- --------------------
Dow Closed 0 24,995.00 +529.95
Nasdaq Closed 0 9,340.22 +15.63
S&P 500 Closed 0 2,992.00 +36.32
NYSE Volume 0 5.94B
NYSE Advancers 0 2493
NYSE Decliners 0 466
Nasdaq Volume 0 4.47B
Nasdaq Advancers 0 2295
Nasdaq Decliners 0 977
New Highs/Lows
05/19 05/20 05/21 05/22 05/25 05/26
--------------------------------------------
NYSE New Highs 28 34 30 26 0 42
NYSE New Lows 9 7 6 7 0 3
Nasdaq New Highs 71 88 58 72 0 125
Nasdaq New Lows 11 15 13 10 0 11
Stocks Covered Today...Stock Splits...
TRADER'S TIP: "Learning From The Past"
One thing is for certain; the stock market can move up and down faster than most investors ever imagine. The cost of being unprepared for a trip in the wrong direction can be extremely expensive, both financially AND emotionally. Many traders and investors think risk control is boring, and had much rather spend their time chasing some ultra-hot stock tip. Just remember that the main reason most traders and investors lose money is because they don't have a planned risk control strategy to protect them from excessive losses.
It hurts to lose. That's why so many of our friends and relatives stop talking about their investments when things go bad. With no plan to limit losses, their stocks can look like the energizer bunny in reverse - they keep going and going, lower and lower. Even folks who recover some of their losses can be helplessly frozen, not knowing what to do. They still have no plan to prevent it from happening again.
Help stop the madness. If you know someone in this situation, tell them about RightLine, and we'll show them how to control risk. You can be sure they'll sleep better at night!
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 - 2991.77 May 26, 2020
52-Week High: 3393.52
52-Week Low: 2191.86
Daily Trend: UP
Weekly trend: UP
Weekly Pivot Levels
Resistance 3: 3082.72
Resistance 2: 3016.29
Resistance 1: 2985.87
Pivot: 2949.86
Support 1: 2919.44
Support 2: 2883.43
Support 3: 2817.00
NASDAQ Composite - 9340.22 May 26, 2020
52-Week High: 9838.37
52-Week Low: 6631.42
Daily Trend: UP
Weekly trend: UP
Weekly Pivot Levels
Resistance 3: 9796.52
Resistance 2: 9545.62
Resistance 1: 9435.10
Pivot: 9294.73
Support 1: 9184.20
Support 2: 9043.83
Support 3: 8792.93
Dow Industrials - 24995.11 May 26, 2020
52-Week High: 29568.57
52-Week Low: 18213.65
Daily Trend: UP
Weekly trend: UP
Weekly Pivot Levels
Resistance 3: 25731.49
Resistance 2: 25073.01
Resistance 1: 24769.08
Pivot: 24414.53
Support 1: 24110.60
Support 2: 23756.05
Support 3: 23097.57
Stocks Covered Today...Stock Splits...
Market Calendar
ECONOMIC REPORTS AND EVENTS (all times are Eastern): Monday, May 25, 2020: 25-May None scheduled: Memorial Day holiday Tuesday, May 26, 2020: 26-May 8:30 am Chicago Fed national activity index 26-May 9 am Case-Shiller home price index (year-over-year) 26-May 9 am FHFA home price index 26-May 10 am Consumer confidence index 26-May 10 am New home sales Wednesday, May 27, 2020: 27-May 2 pm Beige book Thursday, May 28, 2020: 28-May 8:30 am Initial jobless claims 28-May 8:30 am GDP second estimate (annual rate) 28-May 8:30 am Durable goods orders 28-May 8:30 am Core capital goods orders Friday, May 29, 2020: 29-May 8:30 am Advance trade in goods 29-May 8:30 am Personal income 29-May 8:30 am Consumer spending 29-May 8:30 am am Core inflation 29-May 9:45 am Chicago PMI 29-May 10 am Consumer sentiment index (final) For a chart of typical Up or Down market reactions to specific major US economic reports go to: Economic Indicator Effects
Stocks Covered Today...Stock Splits...
TRADER'S TIP: "Extended Hours and Erroneous Fills"
You'll sometimes find offers in extended hours trading that seem to good to be true. Don't celebrate too quickly when you buy a $20 stock for $15 bucks. Just remember that the person on the other side of your trade can contest the transaction (after the fact) whenever the sale price is too far away from the closing price. Stock buys and sells outside of the market range are considered "erroneous fills" and can be broken by the brokerage or Electronic Communication Network. For example, the ECN "Island" looks at a trade 20% outside the market price as an "erroneous fill."
Stocks Covered in This Issue
CONSUMER CYCLICAL SECTOR
Boot Barn Holdings, Inc. (BOOT: Consumer Cyclical/Apparel Retail) - SQUEEZE PLAY. The ticker for Tuesday's session shows BOOT 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 23.00 and a SELL short trigger at 20.61. When BOOT 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 2.39 trailing stop. Upon reaching a 2.36 profit, resize the stop to 1.20. Earnings Report Date: N/A. Beta: N/A. Market-Cap: 629.765M. Optionable.
Wynn Resorts, Limited (WYNN: Consumer Cyclical/Resorts & Casinos) - SQUEEZE PLAY. WYNN 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 87.29 and a SELL short entry at 78.89. Once your trade is filled, enter a 8.40 trailing stop. Tighten it to 4.20 after a 10.04 gain. WYNN closed on Tuesday at 84.89. Earnings Report Date: Aug 04, 2020. Beta: 2.53. Market-Cap: 9.157B. Optionable.
HEALTHCARE SECTOR
Canopy Growth Corporation (CGC: Healthcare/Drug Manufacturers-Specialty & Generic) - SQUEEZE PLAY. CGC shareholders know what it feels like to be squeezed. Tuesday's slim price range reveals uncertainty on both sides of the table, a situation which often resolves itself by either Bears or Bulls quickly gaining a clear advantage. The question is "who will win?" Near-term market action tell us whether we should sell short or we should buy shares instead. CGC closed Tuesday at 20.01. The plan is to enter in the right direction by placing a BUY trigger at 21.19 and a SELL short trigger at 19.25. Once CGC establishes direction, place your triggered order. As soon as you are in the trade, place a trailing stop in the amount of 1.94. After you've collected a 1.82 profit, tighten the stop to 0.97. Earnings Report Date: N/A. Beta: 2.49. Market-Cap: 7.377B. Optionable.
INDUSTRIALS SECTOR
Cryoport, Inc. (CYRX: Industrials/Integrated Freight & Logistics) - SQUEEZE PLAY. Tuesday's trading session left CYRX 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 23.66 and your SELL short trigger at 21.48. One of the orders will be triggered by upcoming price action. When your market order is filled, cancel the remaining trigger and enter a 2.18 trailing stop. Once you have a 2.38 profit, reduce the stop to 1.09. Earnings Report Date: N/A. Beta: 0.74. Market-Cap: 880.142M. 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.
Stocks Covered Today...Stock Splits...
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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