Notes From The Editor

Twenty years ago a writer named Malcolm Gladwell released a popular book called "The Tipping Point." The basic premise is that seemingly small changes can cause an idea or concept to "tip," to become viral, even an epidemic. With respect to say, fashion, this can mean that a certain type of shoe becomes wildly popular. It can work in the traditional definition of a spreading disease, or with the growing popularity of a product.

So what does this have to do with trading? Well, the concepts that Gladwell presents - and his explanations for the "tipping" phenomenon - are closely tied to human nature. For example, he asserts that because of the way our brains are structured, we have trouble belonging to groups of more than 150 people, because it's hard to maintain a meaningful relationship with that many individuals. Similarly, he argues that what's happening around us - the "context" - can influence our decisions in subconscious ways.

Stock movements are also the product of our fundamental human nature. Greed and fear move lead to buy/sell decisions that directly influence price action. These emotions also have their own tipping points - an instance in time when a trend becomes a torrent. You can see this on a stock chart, when prices shift from a gradual trend to a steep, parabolic rally or sell-off.

So what might cause a stock to "tip?" Oftentimes, it's a relatively minor occurance, such the violation of an important technical support or resistance level. Other times, as we've learned recently with COVID-19, it can be a major global event. Even though the stock's underlying fundamentals might be unchanged, the context can shift in the blink of an eye. This, in turn, sets off a cascade effect that leads to a major price movement.

Basic assumptions about the market also change. For example, as the market spiraled lower in 2008 and into the first two months of 2009, a growing number of participants thought that stocks were deeply oversold and due for a bounce. This idea didn't tip into widespread acceptance until March 2009 - but once it did, the result was dramatic: the beginning of a sustained long-term bull market. The same type of thinking is impacting the current market as the world starts to recover from the severe economic damage caused by the C-19 pandemic.

I'm not sure what Gladwell would say about trading, but I'm sure his thoughts would be fascinating. His observations also remind us that while some events might seem random (a large stock rally, for example, or the spread of a radical new idea), there are unseen forces - guided by human nature - that are influencing events.

Here's to profits,

Kent Barton
Senior Analyst

Quick List

    
Stock     05/29     05/29      Buy      Short   Trailing Stops     Gain 
Symbol    Price      +/-      Entry     Entry   Initial/Tighten   Amount 
------  --------  --------  --------  --------  ---------------  --------

TALO      12.15      0.08     12.57                  1.38/0.69      2.08
HARP      21.76      1.17     22.29                  6.44/3.22      2.06
CRS       23.37     -0.58     24.11     22.15        1.96/0.98      3.32
PS        20.83      0.34     21.38     19.76        1.62/0.81      2.40

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

The major US stock averagesclosed mixed on Friday, with the Nasdaq and S&P 500 both in rally mode while the Dow dipped slightly. Economic data displayed the severe impact of the C-19 pandemic, as Chicago manufacturing activity reached 30-year lows, April personal spending declined more than expected and consumer sentiment for May from the University of Michigan was revised lower. In equities, Williams-Sonoma (WSM $83) topped sales estimates despite stores being closed for over half the quarter, while Costco Wholesale Corp (COST $308) posted mixed results and Salesforce.com (CRM $175) released a disappointing outlook. Oil and gold both finished the session higher, the USD/dollar stayed the same and treasury yields slid lower.

                      Friday                 On The Week      
                  --------------------   --------------------
Dow                    25,383   -17.53         +918     3.75%
Nasdaq               9,489.87  +120.88      +165.28     1.77%
S&P 500                 3,044   +14.58          +89     3.01%

NYSE Volume                      7.44B                       
NYSE Advancers                    1421                       
NYSE Decliners                    1531                       

Nasdaq Volume                    4.78B                       
Nasdaq Advancers                  1672                       
Nasdaq Decliners                  1606                       

                                 New Highs/Lows

                   05/22  05/25  05/26  05/27  05/28  05/29
                 --------------------------------------------
NYSE New Highs        26      0     42     21     37     28
NYSE New Lows          7      0      3      7      1     13
Nasdaq New Highs      72      0    125     49     84     82
Nasdaq New Lows       10      0     11     12     11     18
   

TRADER'S TIP: "Your Trading Journal"

A Trading Journal has no physical specifications - it can be a notebook, pages you put in a binder, a spreadsheet or possibly copies of trade confirmations with notes written on them. Choose whatever is easiest for you to work with, since it's the details inside the journal that are important.

At a minimum, the content of your trading Journal should be broken into three major categories:

1) The Numbers (date, symbol, position size, cost, gain or loss, etc.)

2) The Decision-Making Process (Why did you chose to do what you did?)

3) What Can I Learn From the Trade?

This is where the rubber meets the road! Although a trade may end when you exit a position, this is often when the learning begins. A trading journal or diary will help answer the questions, "Now that I see the past with 20/20 vision, what would I have done differently? What did I do right? Did my emotional state of mind affect my success? Did I follow my trading plan? Did I use Risk Control? Did I set my stop at reasonable level?"

When you review your trades after the fact, it's amazing how easy it is to find important information that will help you with your next trades. We can't force stocks to do what we want them to, but we can obtain valuable insight from each trade we make. Moreover, the difference between progress and stagnation is our ability to learn from our experiences.

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 - 3044.31 May 29, 2020

52-Week High: 3393.52
52-Week Low: 2191.86
Daily Trend: UP
Weekly trend: UP
Weekly Pivot Levels
Resistance 3: 2172.48
Resistance 2: 1953.52
Resistance 1: 976.76
Pivot: 1734.56
Support 1: 757.80
Support 2: 1515.60
Support 3: 1296.64


NASDAQ Composite - 9489.87 May 29, 2020

52-Week High: 9838.37
52-Week Low: 6631.42
Daily Trend: UP
Weekly trend: UP
Weekly Pivot Levels
Resistance 3: -3124864.04
Resistance 2: -18429814.80
Resistance 1: -9214907.40
Pivot: 9214907.40
Support 1: 18429814.80
Support 2: -6090043.36
Support 3: -21394994.12
        
Dow Industrials - 25383.11 May 29, 2020

52-Week High: 29568.57
52-Week Low: 18213.65
Daily Trend: UP
Weekly trend: UP
Weekly Pivot Levels
Resistance 3: -3124864.04
Resistance 2: -18429814.80
Resistance 1: -9214907.40
Pivot: 9214907.40
Support 1: 18429814.80
Support 2: -6090043.36
Support 3: -21394994.12
 

Market Calendar

ECONOMIC REPORTS AND EVENTS (all times are Eastern):    

Monday, June 01, 2020:
01-Jun  9:45 am   Markit manufacturing PMI
01-Jun  10 am   ISM manufacturing index
01-Jun  10 am   Construction spending

Tuesday, June 02, 2020:
02-Jun  Varies   Motor vehicle sales

Wednesday, June 03, 2020:
03-Jun  8:15 am   ADP employment report
03-Jun  9:45 am   Markit services PMI
03-Jun  10 am   ISM nonmanufacturing index
03-Jun  10 am   Factory orders

Thursday, June 04, 2020:
04-Jun  8:30 am   Initial jobless claims (regular state program, SA)
04-Jun  8:30 am   Initial jobless claims (total, not seasonally adjusted))
04-Jun  8:30 am   Trade deficit
04-Jun  8:30 am   Productivity (revision)
04-Jun  8:30 am   Unit labor costs (revision)

Friday, June 5, 2020:
05-Jun  8:30 am   Nonfarm payrolls
05-Jun  8:30 am   Unemployment rate
05-Jun  8:30 am   Average hourly earnings
05-Jun   3 pm   Consumer credit

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

TRADER'S TIP: "When Half Is Better"

If you have any doubt about a trade, or think your position size may be too large, either cut it in half or exit entirely. It's much better to end up with half or less of the desired profit than to take twice the unwanted loss. In any case, don't risk more than you can afford to give up without pain, for when it comes to the stock market, things can change very quickly.

Stocks Covered in This Issue

ENERGY SECTOR

Talos Energy Inc. (TALO: Energy/Oil & Gas E&P) - BULLISH BOUNCE. This trader-friendly setup turns repetitive stock behavior into real profits. Based on the tendency for up-trending stocks to drop briefly and then resume the up-trend, the Bullish Bounce places traders into excellent stocks when conditions are primed for more skyward movement. TALO's current price action near moving average support signals a potential BUY entry at 12.57, followed by a 1.38 trailing stop which can be tightened to 0.69 upon earning 2.08. TALO closed Friday at 12.15. Earnings Report Date: Aug 06, 2020. Beta: 4.15. Market-Cap: 793.909M. Optionable.

HEALTHCARE SECTOR

Harpoon Therapeutics, Inc. (HARP: Healthcare/Biotechnology) - BULLISH BOUNCE. Among other strengths, the Bullish Bounce protects traders from buying a stock "at the top" of its current cycle. The entry into this setup always takes place in upward-moving stocks that have retreated a bit under normal conditions. Now sitting at 21.76, HARP is on our radar for a BUY entry at 22.29. If you purchase shares of HARP, be sure to also place a trailing stop of 6.44. Snug it up to 3.22 on a 2.06 gain. Earnings Report Date: Aug 03, 2020. Beta: N/A. Market-Cap: 543.954M. Not Optionable.

INDUSTRIALS SECTOR

Carpenter Technology Corporation (CRS: Industrials/Metal Fabrication) - 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 CRS. A move to the upside will trigger our BUY entry at 24.11, while a drop to 22.15 will trigger our SELL short entry. Follow your position with a 1.96 trailing stop. Tighten the stop to 0.98 once you have a 3.32 gain. CRS closed Friday at 23.37. Earnings Report Date: Jul 30, 2020. Beta: 2.19. Market-Cap: 1.117B. Optionable.

TECHNOLOGY SECTOR

Pluralsight, Inc. (PS: Technology/Software-Application) - SQUEEZE PLAY. PS 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. PS is now at 20.83. We can capture price action either way by placing a BUY trigger at 21.38 and a SELL short trigger at 19.76. Once PS 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 1.62. When you acquire a 2.40 profit, tighten the stop to 0.81. Earnings Report Date: Jul 29, 2020. Beta: 2.58. Market-Cap: 2.977B. 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

The Gap Primer

Gaps are shock events that jolt price up or down and leave an "open window" to the last bar. Market folklore (such as the infamous "gaps Get filled") seems to offer guidance, but in reality it has little value. After all, many gaps never get filled. So how can we use these one-bar wonders to make good trades and increase profits? The first thing to do is figure out what kind of gap you're dealing with. It should fall into one of these three categories:

~ Breakaway gaps appear as markets break out into new trends, up or down.

~ Continuation gaps print about halfway through trends, when enthusiasm or fear overpowers reason.

~ Exhaustion gaps burn out trends with one last surge of emotion.



Certain trades work best with each gap type, so proper identification is extremely important. Use relative location and key characteristics to place them into the right category. There is also a psychological aspect to recognizing the correct gap. Breakaway gaps "surprise" because they appear suddenly on charts you've ignored. Continuation gaps "frustrate" because they pop up where you think price should reverse. Exhaustion gaps "relieve" because they print after you hold on for too long.

Trade the trend on the first pullback to a breakaway or continuation gap. In other words, buy the decline after a rally, or sell the rally after a decline. The odds favor a reversal back in the primary direction, even if these gaps fill. However, the pullback trade often requires great patience. Markets retest breakout gaps right after they occur, but many bars can pass before price returns to test a continuation gap.



Use the continuation gap to target major reversals. The first test usually occurs after closure of the exhaustion gap. But you can't trade it if you can't find it, so here's a trick: Wait until you can count three price moves, up or down. Then place a Fibonacci grid across the entire trend and look for a continuation gap at the 50% level. If you find one, place a limit order within the gap and wait for a test to occur. The retracement should provide enough support or resistance to force a reversal. Once the gap is filled, place a trailing stop and keep it close behind current price action.

Modern markets fill many continuation gaps for a bar or two before they reverse. If you're a defensive trader, place your order within this extreme price level. Many times you won't get filled, but you'll save yourself whipsaws from entering too early. Keep in mind the filled gap presents low risk only when volume remains flat and price doesn't gap back through the old gap to get there.



Exhaustion gaps print blowoffs that end a trend. This last burst of energy can occur on high volume, but the lack of it doesn't change the outcome. Exhaustion gaps fill easily, with price often heading lower in a hurry. After this reversal, use multiple time frame analysis to plan your next move. For example, an exhaustion gap may also print a continuation gap in the next larger time frame. Be patient if this sounds confusing. Seeing this three-dimensional landscape requires a sharp eye and a lot of charting experience.

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.

Disclaimer

The RightLine Report is an information service for investors and traders. It is not a solicitation nor a recommendation or offer to buy or sell securities. The information provided is obtained from sources deemed reliable but is not guaranteed as to accuracy or completeness. The publishers of The RightLine Report are not brokers or financial advisors, and are not acting in any way to influence the purchase or sale of any security. Stock picks, entry points and exit points should be considered an information resource to assist the trader in developing a trading plan and it is the sole responsibility of the reader to conduct his or her own due diligence before executing a trade. Trading securities should be considered speculative with a high degree of volatility and risk.

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