Notes From The Editor

Let's take a look at an interesting dynamic that can have a repetitive impact on a trader's profits. It's called "round number resistance" - a quirky market phenomenon that occurs when a stock or index approaches a price level that ends with one or more zeros. Since stocks normally stay in double digits, "round" numbers like 10, 20, 50, 60 and so forth tend to be sticky points. With major indices like the Dow, Nasdaq, and S&P 500, multiples of zero are the most difficult hurdles to overcome.

Most folks probably wonder if round numbers really do matter, or if all the talk about "psychological barriers" is just another trader's tale. To find out, two finance researchers embarked on an intriguing investigation. The result of their work was published in 1993 under the title "Price Barriers in the Dow Jones Industrial Average." The results are quite remarkable.

Harold Kim of Princeton and Glen Donaldson of the University of British Columbia conjectured that if multiples of 100 or 1,000 did actually present mental barriers to investors, then the Dow's behavior near those price levels should differ from its behavior when it isn't near them.

Kim and Donaldson theorized that it should take longer - on average - for the Dow Industrials to move through multiples of 100 or 1,000 than through other levels. They also speculated that once a "round number" barrier is broken, the rate of price change for the Dow should be faster than normal.

Believe it or not, this is precisely what they found. To further test the results, Kim and Donaldson decided to apply the same line of study to a less popular index - the Wilshire 5000. It was an ideal choice, for relatively few investors know what it is and an even smaller number track its price level.

In contrast to the popular Dow Industrial Average, the researchers didn't find any unusual patterns when the Wilshire 5000 came close to a multiple of 100 or 1,000. This discovery supported their earlier conclusion; investor perception is the real reason for the behavior near round numbers.

Bottom Line: Scientist Dr. John C. Lilly once wrote, "In the province of connected minds, what the network believes to be true, either is true or becomes true within certain limits to be found experientially and experimentally." As traders, it pays to find these limits in market crowd behavior, because of their impact on price movement.

Round Number Resistance is a confirmed "limit" that is extremely easy to anticipate. It may seem odd at first, but all price barriers are created by investor perception, and each one provides us with an opportunity to make money.

Here's to the weekend!

- Thomas Sutton, Editor

Quick List

    
Stock     05/08     05/08      Buy      Short   Trailing Stops     Gain 
Symbol    Price      +/-      Entry     Entry   Initial/Tighten   Amount 
------  --------  --------  --------  --------  ---------------  --------

HFC       31.21      2.90     31.69                  3.94/1.97      4.58
MORN     143.12      0.48    147.54                 10.18/5.09      9.24
OMER      16.00      0.08     16.53     15.34        1.19/0.59      1.84
NRG       32.77      0.65     33.83                  2.52/1.26      2.78

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

All the major US averages closed solidly higher on Friday to cap a bullish week despite dismal economic headlines. The optimism reflects the market's tendency to look ahead, in this case by focusing on the anticipated positive impact of reopenings in over half the US states. Adding to the optimistic outlook, key regions in Europe are improving, plus recent signs of recovery in China are encouraging investors as well. Economic headlines were led by Friday's labor report showing an implosion in April employment and a historic spike in the jobless rate. In earnings news, Uber Technologies (UBER $33) continued the recent trend of potential recovery from the severe impact of the C-19 pandemic, although Bookings Holdings (BKNG $1,431) announcement of a loss demonstrated that the travel industry is likely to remain under pressure for some time. Oil prices and treasury yields advanced in value, while gold and the USD/dollar both declined.

                      Friday                 On The Week      
                  --------------------   --------------------
Dow                    24,331  +455.43         +607     2.56%
Nasdaq               9,121.32  +141.66      +516.37        6%
S&P 500                 2,930   +48.61          +99      3.5%

NYSE Volume                      4.94B                       
NYSE Advancers                    2479                       
NYSE Decliners                     488                       

Nasdaq Volume                    3.81B                       
Nasdaq Advancers                  2516                       
Nasdaq Decliners                   724                       

                                 New Highs/Lows

                   05/01  05/04  05/05  05/06  05/07  05/08
                 --------------------------------------------
NYSE New Highs         5      5     23     24     27     31
NYSE New Lows          5     10      7     19     15      6
Nasdaq New Highs      20     19     47     61     66     87
Nasdaq New Lows       20     16     15     32     14     11
   

TRADER'S TIP: "What If I Had A Crystal Ball?"

You don't need a crystal ball if you prepare for each trade with the "what if" approach. Always remember to ask these questions before entering any position - "What will I do if price moves in my favor?" And "What will I do if price moves against me?" Most traders and investors never consider these questions at all, so simply writing down specific answers will put you way ahead of the game.

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 - 2929.80 May 8, 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 - 9121.32 May 8, 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 - 24331.32 May 8, 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: "When Volatility Steps Up On Fed Day"

When volatility steps up, it may be time for some traders to sit down. During times of wild and erratic trading, don't be afraid to let things settle down before attempting to take advantage of the situation. Often times, new traders get caught up in the euphoria of rapidly changing prices, but then get stung on poor fills, slow fills, market manipulation, and the likes. Unless you've got the experience and tools to successfully trade during "crunch" times, it may be best to just sit and watch. A good example of this type of trading situation arrives with each Fed interest rate announcement, after which, the pits tend to go wild for a time before traders and investors settle down to more orderly trading.

Stocks Covered in This Issue

ENERGY SECTOR

HollyFrontier Corporation (HFC: Energy/Oil & Gas Refining & Marketing) - BULLISH BOUNCE. HFC's positive weekly uptrend is still intact despite recent selling that has driven share prices lower. Price action on Friday shows that traders are aware of the moving average support zone now in play, and they are ready to consider buying again. A shift up from this point will attract even more buyers. The new buying should move HFC back in step with the bullish weekly trend, so our BUY entry trigger is set at 31.69. Once you hold a position, trail a stop of 3.94. Tighten it to 1.97 on a 4.58 gain. HFC closed at 31.21 on Friday. Earnings Report Date: Jul 30, 2020. Beta: 1.77. Market-Cap: 5.052B. Optionable.

FINANCIAL SERVICES SECTOR

Morningstar, Inc. (MORN: Financial Services/Financial Data & Stock Exchanges) - BULLISH BOUNCE. Looking a bit frayed after sliding downhill in recent sessions, on Friday MORN seemed intent on initiating a rebound. With moving average support nearby, MORN is at a logical place for Bulls to regroup and extend the familiar uptrend that shareholders have become accustomed to. On continued buying, plan on taking long entries with a BUY at 147.54. Manage risk with a 10.18 stop. Tighten your stop to 5.09 when you have a 9.24 profit. MORN ended the day at 143.12. Earnings Report Date: Jul 23, 2020. Beta: 1.17. Market-Cap: 6.125B. Optionable.

HEALTHCARE SECTOR

Omeros Corporation (OMER: Healthcare/Biotechnology) - SQUEEZE PLAY. OMER shareholders know what it feels like to be squeezed. Friday'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. OMER closed Friday at 16.00. The plan is to enter in the right direction by placing a BUY trigger at 16.53 and a SELL short trigger at 15.34. Once OMER establishes direction, place your triggered order. As soon as you are in the trade, place a trailing stop in the amount of 1.19. After you've collected a 1.84 profit, tighten the stop to 0.59. Earnings Report Date: May 11, 2020. Beta: 1.93. Market-Cap: 872.444M. Optionable.

UTILITIES SECTOR

NRG Energy, Inc. (NRG: Utilities/Utilities-Independent Power Producers) - BULLISH BOUNCE. The charts for NRG show that despite the downward pressure from sellers recently, the weekly uptrend is still going strong. Buyers showed up again on Friday, resulting in the early stages of a rebound that started near moving average support. The resulting Bullish Bounce set-up offers a potential entry point for a long play. Set your trigger to BUY shares at 33.83, and follow your entry with a trailing stop of 2.52. Tighten it to 1.26 when a 2.78 profit is reached. NRG ended the latest session at 32.77. Earnings Report Date: Aug 05, 2020. Beta: N/A. Market-Cap: 8.21B. 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

Buying The Pullback

Buying the pullback makes good sense after a strong rally, but it's a great way to lose money if you jump in too early or too late.

How can you find perfect timing when it comes to this classic play? The key lies in reading the clues of the charting landscape. It's natural for markets to correct after big rallies. This countertrend move lowers the emotional fires and sets up the ideal conditions for a swing back to higher prices.

But any pullback can turn into a reversal and trap your position in a downward spiral. So let's look at the types of pullbacks we want to buy and those that should be avoided at all costs.

Volume presents important evidence about a stock's intentions when it starts to pull back. Look for selling to contract when bars test lower prices. The most bullish volume shows a steady downslope in the histograms under the price bars. This suggests shareholders are hanging tough because they believe in higher prices. Alternatively, big red volume spikes show fear and may signal important tops.



Don't trade a pullback against a gap. There are two types of gaps you need to worry about. The first shows up on a high-volume move near the end of the rally. This corresponds with an exhaustion gap that warns traders a reversal is near. It also marks resistance after a stock finds support on the pullback and starts to rally again.

Second, don't buy into a gap down when the stock is pulling back unless it gets filled the same day. This is a tough one because falling stocks often find support right after the longs give up and sell into a gap down opening. The problem comes when the gap doesn't fill by day's end. This prints a bearish reversal on the price chart and attracts more selling.



The simplest entry comes from a pullback into a strong support level. Trend lines, old highs and Bollinger Bands ease selling pressure, and allow buyers to carry the market back in the other direction. The biggest problem with these falling-knife entries is usually psychological. The trader loses confidence while watching the intensity of the selloff and fails to act when it's time to pull the trigger.



A trip down to the 50-day moving average offers an excellent opportunity for dip buyers who want to hold positions for a few days or a few weeks. This price zone usually marks strong support after a rally. A market pulling back here also suggests early dip buyers got beat up on the ride down.

Pullbacks tend to feed on traders who buy too early. In other words, they buy and the market drops, stopping them out and forcing prices even lower. This downward spiral continues until prices reach a large pool of buying interest. This fresh demand often sits right at the 50- day moving average.



Many traders use Fibonacci retracements to uncover hidden support on a pullback. But this is a lot harder than it looks. Stocks commonly drop to three different retracement levels, and you can lose a lot of money when you pick the wrong one. Fortunately there are ways to focus in and locate the most likely support level. Put the odds squarely in your favor by standing aside until price reaches a deep retracement that corresponds with other types of support. This means the safest strategy is to focus on the 62% retracement and look for intermediate averages or old highs at the same prices. This process is called cross-verification. It works because it's self- fulfilling. Different traders look for different types of support in various pullback scenarios. Finding convergence of multiple support types at narrow price levels taps into this broad set of buying signals.The intraday chart holds the key to pullback profits. Often, it's hard to make sense of a market pulling back on a daily chart. Fortunately trends evolve in all time frames, and traders can use the intraday chart to uncover hidden support and resistance levels.Focus on the 60-minute chart because this gives you many days of intraday price bars to work with. Pull one up when you see a correction in progress, and start searching for common patterns, such as bull flags or double bottoms. These inflection points reveal low- risk entry prices for positions taken in much longer time frames.

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

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