April 16, 2024 - The RightLine Report
Notes From The Editor
Trading The Squeeze
"When you come to a fork in the road, take it!" These humorous words spoken by baseball great Yogi Berra often apply to how we trade the stock market. A quick look at the "Stocks Covered" secction of the RightLine Report usually reveals at least one "squeeze play." We're not talking about the familiar baseball bunt play, but a trade setup that has the potential to put profits in your pocket!
Allow me to step back in time to a personal sports analogy for a moment. As a former Little League first baseman, I distinctly remember the old squeeze play Coach Bryant taught to "our team" of hyper-active fifth graders.
For anyone who isn't familiar with a squeeze play, it takes place when the batter bunts with a runner on third base. The play is designed to advance the runner home. The runner on third is taught to wait to be sure that the batter has successfully bunted before racing towards home plate.
Unfortunately, when I was the runner on third I didn't always remember the "wait" part. Several times I tried to get a head start. As a result of this over-anticipation I once found myself trapped between third and home, with a couple of opposing players breathing down my neck!
A stock market squeeze play takes place when prices are constricted in narrowing range between support and resistance. Longs (buyers) hold onto their positions because support hasn't been broken yet, and shorts hold onto their positions because resistance hasn't broken yet.
With the spread between the range getting smaller and smaller each day, the "squeeze" obviously can't go on forever. At some point one side or the other gives up. When this happens price moves quickly and powerfully in the direction of least resistance.
The key to a successful squeeze play is to first identify the opposing support and resistance levels. Then you wait - like the runner on third - until price action indicates one side or the other is giving up. You then enter a position in the direction of the move. Because the support and resistance levels are close together, stops can be set wide enough to accommodate normal intra-day price movement, yet still allow a low risk entry.
Bottom line: Price squeezed into a much smaller-than-average range causes a dramatic drop in volatility. Due to the cyclical and explosive nature of volatility, powerful price moves tend to occur soon after these narrow range setups. But there's no reason to jump in too fast. Be patient, let the market show its hand first, and you'll get a low risk entry with the potential for high reward!
Trade well,
Thomas Sutton ~Editor
Note: Although most stocks are influenced by the price movement of the S&P 500, SPY trades almost directly in sync with the index, and offers an easy way to go either long or short. For more info and charts on "Trading The Squeeze" go to https://prorightline.com/trading-squeeze-plays-for-profits/.
Stocks Covered Today Stock Splits
Quick List
Stock 04/16 04/16 Buy Short Trailing Stops Gain
Symbol Price +/- Entry Entry Initial/Tighten Amount
------ -------- -------- -------- -------- --------------- --------
LWAY 20.44 0.22 20.83 1.89/0.95 2.8
HIPO 21.20 0.17 21.79 19.55 2.24/1.12 2.02
GSL 21.46 0.06 21.76 1.31/0.66 0.64
CECO 23.44 0.39 23.88 1.87/0.94 1.38
DQ 23.36 -0.37 24.13 22.54 1.59/0.8 2.76
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 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
The cautious sentiment persisted on Tuesday, with stocks closing slightly lower following Monday's 1% decline. Geopolitical uncertainties in the Middle East continued to weigh on investor sentiment, along with the ongoing anticipation of a delayed rate cut by the Fed. However, upbeat earnings results from UnitedHealth and Bank of America released on Tuesday morning provided some support to the major US indexes, reaffirming the positive outlook for corporate earnings as a key market driver. The S&P 500 ended the day down by 0.2%, while the Dow gained 64 points, driven by a rise in UnitedHealth shares.
Health care and consumer staples sectors led the gains, along with a notable increase in gold prices, signaling a defensive stance among investors. Despite concerns about potential supply disruptions due to the Iran-Israel conflict, oil prices closed slightly lower on Tuesday, as markets weighed the possibility of OPEC+ spare capacity coming online to offset any production disruptions.
Bond yields rose again on Tuesday, with the 10-year Treasury rate surpassing 4.65%, reaching its highest level since last November. The uptick in yields was driven by hotter-than-expected inflation readings and continued strong economic data, prompting a reassessment of Fed policy expectations for the rest of the year.
Comments from several Fed officials received extra attention as investors sought further insights into how policymakers are interpreting the latest inflation data. While the Fed's recent meeting signaled a pause on rate hikes and acknowledged the possibility of future rate cuts, Fed officials emphasized their cautious approach and stated that they would wait for sustained evidence of declining inflation before considering easing policy.
Although the increase in bond yields has been significant, we believe it reflects an adjustment to the new Fed stance rather than a signal of prolonged rising interest rates. We anticipate that longer-term rates will gradually stabilize as inflation trends lower and the Fed moves closer to implementing rate cuts later in the second half of the year.
Apr 15, 2024 Apr 16, 2024
-------------------- --------------------
Dow 37,773.43 -209.81 37,798.97 63.86
Nasdaq 15,885.02 -290.08 15,865.25 -19.77
S&P 500 5,066.00 -57.41 5,051.41 -10.41
NYSE Volume 3.95B 4.01B
NYSE Advancers 450 998
NYSE Decliners 2,397 1,802
Nasdaq Volume 4.92B 5.01B
Nasdaq Advancers 948 1,422
Nasdaq Decliners 3,300 2,786
New Highs/Lows
04/09 04/10 04/11 04/12 04/15 04/16
--------------------------------------------
NYSE New Highs 105 35 47 63 20 9
NYSE New Lows 8 46 28 60 89 118
Nasdaq New Highs 98 36 61 49 35 29
Nasdaq New Lows 80 187 141 209 335 361
Stocks Covered Today Stock Splits
TRADER'S TIP: "Trading Twenty-four Seven?"
Smart traders pick their spots. You don't have to trade continuously, nor should you. Being prepared for an opportunity means knowing about it in advance, which means staying informed - even when you aren't holding a position.
The Technical Analyst
For help with this chart, be sure to read "Understanding The Importance Of Support And Resistance"
and "Improve Your Trading With Moving Averages".
Stocks Covered Today Stock Splits
Market Calendar
ECONOMIC REPORTS AND EVENTS (all times are Eastern): MONDAY, APRIL 15 2:30 am Dallas Fed President Lorie Logan speaks in Tokyo 8:30 am Empire State manufacturing survey 8:30 am U.S. retail sales 8:30 am Retail sales minus autos 8:30 am New York Fed President John Williams TV appearance 10:00 am Business inventories 10:00 am Home builder confidence index 8:00 pm San Francisco Fed President Mary Daly speaks TUESDAY, APRIL 16 8:30 am Housing starts 8:30 am Building permits 9:00 am Fed Vice Chair Philip Jefferson speaks 9:15 am Industrial production 9:15 am Capacity utilization 1:15 pm Fed Chair Jerome Powell speaks WEDNESDAY, APRIL 17 2:00 pm Fed Beige Book 5:30 pm Cleveland Fed President Loretta Mester speaks 7:15 pm Fed Governor Michelle Bowman speaks THURSDAY, APRIL 18 8:30 am Initial jobless claims 8:30 am Philadelphia Fed manufacturing survey 9:05 am Fed Governor Michelle Bowman speaks 9:15 am New York Fed President John Williams speaks 10:00 am Existing home sales 10:00 am U.S. leading economic indicators 11:00 am Atlanta Fed President Raphael Bostic speaks 5:45 pm Atlanta Fed President Raphael Bostic speaks FRIDAY, APRIL 19 10:30 am Chicago Fed President Austan Goolsbee speaks 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: "Trade With The TICK"
Intraday traders should always trade in harmony with the TICK, not against it. You can even draw trendlines or channels on the TICK chart to insure that your position is always aligned with the money flow. This helps you to anticipate where the next big move will occur and allows the current to work for you.
Stocks Covered in This Issue
CONSUMER DEFENSIVE SECTOR
Lifeway Foods, Inc. (LWAY: Consumer Defensive/Packaged Foods) - 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 LWAY which met our setup criteria on Tuesday. The BUY trigger for this trade is at 20.83, and the trailing stop is sized at 1.89. Resize the stop to 0.95 upon collecting a 2.8 point gain. LWAY closed Tuesday at 20.44. Earnings Report Date: May 13, 2024. Beta: 1.37. Market-Cap: 300.284M. Not Optionable.
FINANCIAL SERVICES SECTOR
Hippo Holdings Inc. (HIPO: Financial Services/Insurance - Specialty) - SQUEEZE PLAY. HIPO 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 21.79 and a SELL short entry at 19.55. Once your trade is filled, enter a 2.24 trailing stop. Tighten it to 1.12 after a 2.02 gain. HIPO closed on Tuesday at 21.20. Earnings Report Date: May 02, 2024. Beta: 1.58. Market-Cap: 515.391M. Optionable.
INDUSTRIALS SECTOR
Global Ship Lease, Inc. (GSL: Industrials/Rental & Leasing 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. GSL's behavior on Tuesday could very well be a sign that a new bounce is underway. Place a BUY trigger at 21.76. In the event your trigger is met, also place a 1.31 trailing stop which can be trimmed down to 0.66 when you have a 0.64 profit. GSL closed Tuesday at 21.46. Earnings Report Date: May 08, 2024. Beta: 1.52. Market-Cap: 752.973M. Optionable.
CECO Environmental Corp. (CECO: Industrials/Pollution & Treatment Controls) - BULLISH BOUNCE. Another bullish bouncer, CECO appears ready to resume trading in an uptrend after recent selling forced the stock lower for several days. Tuesday's positive price action near Moving Average support says it's time to BUY shares if CECO reaches our entry trigger set at 23.88. Also place a 1.87 trailing stop which can be narrowed to 0.94 when you reach a 1.38 profit. CECO closed Tuesday at 23.44. Earnings Report Date: May 07, 2024. Beta: 1.23. Market-Cap: 817.32M. Optionable.
TECHNOLOGY SECTOR
Daqo New Energy Corp. (DQ: Technology/Semiconductor Equipment & Materials) - SQUEEZE PLAY. Traders are feeling the pressure as DQ's intra-day price range on Tuesday shrunk to the narrowest spread in over a week. The tension between buyers and sellers should provide enough pent-up engergy for a breakout move in the days ahead, so get ready to trade with the new trend. To achieve that, place a BUY entry at 24.13 and a SELL short entry at 22.54. DQ's price movement will decide which entry is filled. As soon as you're in the trade, enter a 1.59 trailing stop. Tighten it to 0.8 after you get a 2.76 gain. DQ closed Tuesday at 23.36. Earnings Report Date: Apr 25, 2024. Beta: 0.21. Market-Cap: 1.536B. 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
---------------- ------- -------- ------- ------ -------
NOTE: The number of stock split announcments goes up during Bull markets,
and goes down during Bear market cycles. There are currently no upcoming
stock splits that meet RightLine's proprietary criteria for split ratio,
trading volume and price action.
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 in the RightLine Member's Area.
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