May 5, 2020 - The RightLine Report
Notes From The Editor
Five Simple Truths About the Stock Market
The last thing most people associate with trading stocks is predictability. Nobody can say for certain which direction the market will head next, and to what degree. Unexpected news developments can throw a wrench in even the best trade set-ups. One year's top-notch stock pickers can turn into the next year's Wall Street failures. However, there are certain unchanging facts that guide the market - elements that you can count on to help guide your trading:
- The market will relentlessly take advantage of carelessness
It's inevitable: careless trading will ultimately lead to major losses. Failing to use proper position sizing - or worse yet, to not use stop- losses - is something all traders need to guard against. The reason carelessness can be so tempting is because occasionally it gets rewarded. A trader may think, "Hey, last time I left that trade open and it all worked out in the end." This may happen a few times, reinforcing the behavior. But eventually you'll encounter a stock that simply keeps heading the opposite direction. A painful loss soon follows.
- You have complete control over entries and exits
While there's no way of knowing what a stock will do once you're in a trade, you do have the luxury of waiting until the most opportune time to jump onboard the most enticing trade set-ups. Similarly, you can determine the precise moment when to exit a position. So contrary to popular belief, you are not at the whim of the market.
- Price and volume rule the roost.
When you boil it down, all the day-to-day hype, media commentary, and brokerage analysis is just hot air. Price and volume tell the real tale of the tape, showing you how the supply/demand relationship is changing. It pays to focus on what a stock is doing, rather than what people are saying about it.
- There will always be contrarians
Bull market or Bear, there's a never-ending chorus of traders and analysts calling for a move in the opposite direction. While eventually they'll be right, one should never take their word for it; let price action confirm a directional shift by waiting for a break of a key level or a violation of a trendline. Until that happens, simply take note of what the contrarians are saying and continue to follow the trend.
- Wall Street wants you to over-trade
The aforementioned hype machine makes traders fearful of missing The Next Big Move. Without this tendency, the profits reaped by the major brokerages wouldn't be quite as massive. Be selective with your money, and don't operate under the pressure of trying to catch every great trade. Rest assured that the market will have plenty of other great set-ups if you choose to wait on the sidelines.
Here's to profits!
Kent Barton
Senior Analyst
Stocks Covered Today...Stock Splits...
Quick List
Stock 05/05 05/05 Buy Short Trailing Stops Gain
Symbol Price +/- Entry Entry Initial/Tighten Amount
------ -------- -------- -------- -------- --------------- --------
PPC 20.22 0.06 20.95 19.54 1.41/0.70 1.58
ZTO 28.57 0.99 29.22 2.26/1.13 2.06
RDFN 20.19 0.35 21.11 19.42 1.69/0.84 2.76
RUN 13.25 -0.18 14.17 1.62/0.81 1.90
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
Stocks closed higher on Tuesday with the market finding support for cautious economic optimism as 28 states are already in the first stages of reopening or are about to reopen. The optimism offset some April data on the key services sector which showed severe disruption caused by the C-19 pandemic. In equities, AIG (AIG $25), Skyworks Solutions (SWKS $105) and DuPont (DD $45) all reported mixed quarterly earnings results and restricted guidance, while Norwegian Cruise Line presented a strong warning regarding the impact of the coronavirus. Gold, oil prices and the USD/dollar advanced in price. The Treasury yield curve steepened slightly, which typically occurs when investors expect stronger economic growth and rising inflation.
May 4, 2020 May 5, 2020
-------------------- --------------------
Dow 23,750 +26.07 23,883 +133.33
Nasdaq 8,710.72 +105.77 8,809.12 +98.41
S&P 500 2,843 +12.03 2,868 +25.70
NYSE Volume 4.82B 5.21B
NYSE Advancers 1369 1644
NYSE Decliners 1569 1306
Nasdaq Volume 3.48B 3.95B
Nasdaq Advancers 1741 1741
Nasdaq Decliners 1492 1480
New Highs/Lows
04/28 04/29 04/30 05/01 05/04 05/05
--------------------------------------------
NYSE New Highs 31 24 17 5 5 23
NYSE New Lows 4 4 2 5 10 7
Nasdaq New Highs 54 41 28 20 19 47
Nasdaq New Lows 8 5 7 20 16 15
Stocks Covered Today...Stock Splits...
TRADER'S TIP: "Three Possibilities"
As traders and investors we've learned not to spend too much time speculating on market direction, but to focus on careful planning and trade management. It's far better to prepare and have a specific plan ready for any possible price action than to become so devoted to our expectations that we fail to plan for the opposite of what we expect to happen. The market, and our chosen stocks can really only do three simple things that affect price; (1) move up, (2) move down, or (3) stay the same. Unless our trading plan includes specific instructions on what we will do in the event any one of these three scenarios occur, the plan is incomplete.
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 - 2868.44 May 5, 2020
52-Week High: 3393.52
52-Week Low: 2191.86
Daily Trend: DOWN
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 - 8809.12 May 5, 2020
52-Week High: 9838.37
52-Week Low: 6631.42
Daily Trend: DOWN
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 - 23883.09 May 5, 2020
52-Week High: 29568.57
52-Week Low: 18213.65
Daily Trend: DOWN
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
Stocks Covered Today...Stock Splits...
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
Stocks Covered Today...Stock Splits...
TRADER'S TIP: "Is Genius A Requirement?"
You don't have to be "gifted" to trade intelligently. Though the skills needed to trade successfully can certainly take several years to acquire, trading isn't rocket science. While a high IQ isn't required, persistence and discipline are. Fortunately these two qualities are available to anyone who really wants them.
Stocks Covered in This Issue
CONSUMER DEFENSIVE SECTOR
Pilgrim's Pride Corporation (PPC: Consumer Defensive/Packaged Foods) - SQUEEZE PLAY. Trader indecision has put PPC squarely in the center of a Bull versus Bear standoff. This tight spot should soon give way to a clear winner in the short-term, and we want to be in position for the move. To do that we've set a BUY entry at 20.95 and a SELL short entry at 19.54. Now it's up to PPC to show us which entry will be filled. Once the trade is underway place a 1.41 trailing stop, which can be tightened to 0.70 after you achieve a 1.58 profit. PPC closed on Tuesday at 20.22. Earnings Report Date: Jul 29, 2020. Beta: 1.04. Market-Cap: 4.988B. Optionable.
INDUSTRIALS SECTOR
ZTO Express (ZTO: Industrials/Integrated Freight & Logistics) - NEW HIGH DIP. Stocks in the early stages of a bounce tend to move higher. This is especially true when a strong performer in an established uptrend dips to a well-known support level. ZTO fits this model perfectly. After setting a new 52-week high a few days back, the stock dipped for several sessions due to profit taking. Now the price action is signaling there is a reversal underway. Plan to buy this dip if the bounce lifts ZTO to our entry level BUY trigger at 29.22. Set a trailing stop of 2.26 and tighten to 1.13 on a 2.06 gain. ZTO Express closed Tuesday at 28.57. Earnings Report Date: May 20, 2020. Beta: 0.32. Market-Cap: 22.396B. Optionable.
REAL ESTATE SECTOR
Redfin Corporation (RDFN: Real Estate/Real Estate Services) - SQUEEZE PLAY. One interesting trait of price volatility is that it cycles back and forth through periods of expansion and contraction. Stocks that have recently seen their daily price range shift from an average or wide range to an extremely contracted state are ideal candidates for expansive price moves. In many cases the next move is relatively fast and covers a sizable amount of territory. To take advantage of these trades we use both a BUY and a SELL entry. This allows us to enter in whichever direction the breakout takes. In RDFN's case we will enter a BUY should it reach the 21.11 level, or a SELL short trade if it drops to 19.42. As usual a trailing stop is essential, 1.69 which should be tightened to 0.84 on a 2.76 gain. RDFN closed Tuesday at 20.19. Earnings Report Date: N/A. Beta: 1.84. Market-Cap: 1.988B. Optionable.
TECHNOLOGY SECTOR
Sunrun Inc. (RUN: Technology/Solar) - BULLISH BOUNCE. Positive price behavior near moving average support on Tuesday qualifies RUN for a Bullish Bounce setup. After several sessions of declining prices, RUN should soon begin trading in step with its established weekly uptrend. Tell your broker to BUY shares if RUN moves up to our entry trigger set at 14.17. You can also enter a 1.62 trailing stop, to be replaced with a 0.81 trailing stop when you obtain a 1.90 profit. RUN closed Tuesday at 13.25. Earnings Report Date: May 06, 2020. Beta: 1.37. Market-Cap: 1.592B. 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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