April 2, 2022 - The RightLine Report
Notes From The Editor
Many buy-and-hold investors are interested in learning how to trade stocks. Fortunately the skills needed to be successful aren't extremely difficult. They can be mined from experiences along the educational curve that every trader travels.
The journey isn't an overnight trip; it takes patience. Despite the obvious benefits of a good trading education, many people say that they don't have the time to learn. Others think they already know how, then inevitably decide to give up after a few painful losses due to lack of knowledge and experience.
That's too bad. There's no profit in giving up, and there are many important lessons to be learned from losses. All veteran traders are battle toughened and persistent. Each will readily admit they have gained more from their losers than their winners. All trades -- no matter the outcome -- teach us how to become better traders.
In fact it's best to view ALL of our experiences as valuable assets. While many folks would just as soon forget about their "mistakes," those memories viewed with understanding are great resources to be tapped whenever needed.
How we choose to look back at our experiences is extremely important. From the things we did as kids, to the adult situations we all deal with, each scenario contributes to the sum of how we regard ourselves. This view of "us" dramatically affects the way we trade.
It's difficult to admit that we sometimes do dumb things. That's because immediately after we realize our mistakes, we typically feel the emotions of disappointment, embarrassment and shame.
It's at that very moment we arrive at another fork in the road to our future. Fortunately we have a choice. We can either accept what we've done and then follow up by doing something reasonably smart. Or we can try to cover it up and shift the blame to someone or something else.
Over the years most of us have tried both routes. Frankly there is only one way to go to be successful. Learning to take responsibility for the things we do puts us light years ahead of the crowd. We'll also save ourselves a huge amount of emotional anguish.
Trade well,
Thomas Sutton, Editor
Stocks Covered Today Stock Splits Trader's Corner
Quick List
Stock 04/01 04/01 Buy Short Trailing Stops Gain
Symbol Price +/- Entry Entry Initial/Tighten Amount
------ -------- -------- -------- -------- --------------- --------
HPK 22.75 0.54 23.54 1.97/0.99 3.84
STOK 21.81 0.76 22.16 1.86/0.93 2.66
PMVP 20.17 -0.65 21.48 19.34 2.14/1.07 2.96
BE 24.54 0.39 24.94 23.15 1.79/0.9 3.42
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
Questions? Send us an email using our Contact Form.
Stocks Covered Today Stock Splits Trader's Corner
Market Summary
The US markets finished higher on a volatile Friday after traders digested a truckload of economic data. Included was the latest labor report showing weaker than expected job growth, a healthy increase in manufacturing and a persistent list of ongoing supply chain issues. In light equity news, BlackBerry Limited (BB $7) fell short of cybersecurity revenue projections and presented disappointing guidance, while GameStop (GME $165) announced that they are asking for shareholder approval to increase the number of GME shares in preparation for a stock split. The USD/dollar went up in value, gold fell lower, oil prices dropped below $100 per barrel and treasuries were mixed, with the yield curve inverting for the first time since 2006. The current inverted yield curve describes the unusual surge of yields on short-term debt (2-years in this case) above yields on longer-term debt (10-years) of the same credit quality.
Friday On The Week
-------------------- --------------------
Dow 34,818.27 139.92 -42.97 -0.12%
Nasdaq 14,261.50 40.98 +92.2 0.65%
S&P 500 4,545.86 15.45 +2.8 0.06%
NYSE Volume 4.59B
NYSE Advancers 2,157
NYSE Decliners 1,161
Nasdaq Volume 5.01B
Nasdaq Advancers 2,716
Nasdaq Decliners 2,002
New Highs/Lows
03/25 03/28 03/29 03/30 03/31 04/01
--------------------------------------------
NYSE New Highs 169 75 117 120 119 111
NYSE New Lows 187 139 74 25 73 76
Nasdaq New Highs 91 67 92 78 91 75
Nasdaq New Lows 168 162 78 83 125 130
Stocks Covered Today Stock Splits Trader's Corner
TRADER'S TIP: "Unbiased Trading"
Unbiased trading is a powerful tool; it allows us to take advantage of price movement that may not make sense from a news or fundamental perspective. Think about it for a second. Instead of missing out on a rally just because we don't agree that it should be taking place, isn't it better set our prejudices aside and let the market tell us what IT wants to do?
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".
S&P 500 - 4545.86 April 1, 2022
52-Week High: 4818.62
52-Week Low: 3992.76
Daily Trend: UP
Weekly trend: UP
Weekly Pivot Levels
Resistance 3: 4823.03
Resistance 2: 4693.30
Resistance 1: 4619.58
Pivot: 4563.57
Support 1: 4489.85
Support 2: 4433.84
Support 3: 4304.11
NASDAQ Composite - 14261.50 April 1, 2022
52-Week High: 16212.23
52-Week Low: 12555.35
Daily Trend: UP
Weekly trend: UP
Weekly Pivot Levels
Resistance 3: 15427.70
Resistance 2: 14882.14
Resistance 1: 14571.82
Pivot: 14336.58
Support 1: 14026.26
Support 2: 13791.02
Support 3: 13245.46
Dow Industrials - 34818.27 April 1, 2022
52-Week High: 36952.65
52-Week Low: 32272.64
Daily Trend: UP
Weekly trend: DOWN
Weekly Pivot Levels
Resistance 3: 36577.61
Resistance 2: 35743.60
Resistance 1: 35280.93
Pivot: 34909.59
Support 1: 34446.92
Support 2: 34075.58
Support 3: 33241.57
Stocks Covered Today Stock Splits Trader's Corner
Market Calendar
ECONOMIC REPORTS AND EVENTS (all times are Eastern): Monday, April 04, 2022: 04-Apr 10 am Factory orders 04-Apr 10 am Core capital equipment orders Tuesday, April 05, 2022: 05-Apr 8:30 am Foreign trade deficit 05-Apr 9:45 am 05-Apr 10 am ISM services index Wednesday, April 06, 2022: 06-Apr 2 pm FOMC minutes Thursday, April 07, 2022: 07-Apr 8:30 am Initial jobless claims 07-Apr 8:30 am Continuing jobless claims 07-Apr 3 pm Consumer credit Friday, April 08, 2022: 08-Apr 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 Corner
TRADER'S TIP: "Using The Gap Open Tactic When Selling Short"
The Gap Open Tactic works as well when we sell short as it does when we buy a stock. If the stock gaps down at the open, wait for it to take out its low of the first half-hour then enter 0.25 below that point.
For more on the Gap Open Tactic go to: http://www.rightline.net/education/gapopen.html.
Stocks Covered in This Issue
ENERGY SECTOR
HighPeak Energy, Inc. (HPK: Energy/Oil & Gas E&P) - BULLISH BOUNCE. The charts for HPK 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 23.54, and follow your entry with a trailing stop of 1.97. Tighten it to 0.99 when a 3.84 profit is reached. HPK ended the latest session at 22.75. Earnings Report Date: May 16, 2022. Beta: 0.80. Market-Cap: 2.203B. Not Optionable.
HEALTHCARE SECTOR
Stoke Therapeutics, Inc. (STOK: Healthcare/Biotechnology) - BULLISH BOUNCE. STOK'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 STOK back in step with the bullish weekly trend, so our BUY entry trigger is set at 22.16. Once you hold a position, trail a stop of 1.86. Tighten it to 0.93 on a 2.66 gain. STOK closed at 21.81 on Friday. Earnings Report Date: May 09, 2022. Beta: 0.31. Market-Cap: 814.804M. Optionable.
PMV Pharmaceuticals, Inc. (PMVP: Healthcare/Biotechnology) - SQUEEZE PLAY. Friday's trading session left PMVP 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 21.48 and your SELL short trigger at 19.34. One of the orders will be triggered by upcoming price action. When your market order is filled, cancel the remaining trigger and enter a 2.14 trailing stop. Once you have a 2.96 profit, reduce the stop to 1.07. Earnings Report Date: May 12, 2022. Beta: N/A. Market-Cap: 916.741M. Optionable.
INDUSTRIALS SECTOR
Bloom Energy Corporation (BE: Industrials/Electrical Equipment & Parts) - SQUEEZE PLAY. BE 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 24.94 and a SELL short entry at 23.15. Once your trade is filled, enter a 1.79 trailing stop. Tighten it to 0.9 after a 3.42 gain. BE closed on Friday at 24.54. Earnings Report Date: Apr 11, 2022. Beta: 3.43. Market-Cap: 4.417B. 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 Trader's Corner
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
---------------- ------- -------- ------- ------ -------
ACM Research ACMR 3/4/2022 3/24/2022 3-for-1 Yes
PAM Transport PTSI 3/9/2022 3/30/2022 2-for-1 Yes
Amazon AMZN 3/9/2022 6/6/2022 20-for-1 Yes
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.
Stocks Covered Today Stock Splits Trader's Corner
Trader's Corner
Stop Loss Questions And Answers - Part I
I get more questions about stop losses than about any other subject. Clearly this strategy causes traders a lot of pain and confusion. Some of it stems from the schizoid nature of our modern markets. But most of it reflects an underlying weakness in trade management skills.
What takes place at the end of a trade usually reflects decisions made at the beginning. In other words, the best entries usually lead to the most profitable exits. This is the most urgent wisdom I can give when it comes to stop-loss placement.
We can spend hours deciding whether a stock is a good buy or a good sell, but this emphasis is often misplaced. Over time, carefully chosen exits are more important than great entries. You don't believe me? Just ask all those folks who bought tech stocks in the late 1990s.
I've compiled a question-and-answer session that addresses the most important elements of stop-loss strategy.
Question: Where do I place my stop loss when shorting a stock that gaps down?
Answer: The most obvious place is just above the price level where the gap would be filled. But that's a generic answer. It's more effective to place the stop loss on top of converging resistance, such as highs, Fibonacci retracements and moving averages. A bouncing stock will have a very hard time getting through those levels.
Q: I'm getting stopped out of both my longs and my shorts in this market. Are my stops too tight, or should I blame it in the choppy market?
A: There are many reasons why stops get hit too often. It's hard to tell without knowing the specifics of each placement. This is a tough market, and you often have only two choices. First, place a tight stop loss and trade the small swings to avoid all the choppy reversals. Second, back up a giant step and trade the broader trend you see in front of your nose. In other words, the market is only choppy if you're a daytrader or if you flip positions every few days.
The trends are more obvious if your holding period is weeks or longer. But longer holds have a disadvantage when it comes to stop placement. You have to take on greater risk with longer-term positions, because stocks will wiggle around a lot more before getting from point A to point B.
There's one more caution in regard to stop placement. Your stops have to match your trading strategy. For example, if you're looking for a 3- point swing, you have to stay out of the market until your risk (current price to stop price) is a point or less. This goes back to the importance of picking good entry points.
Q: My stops get hit all the time. What am I doing wrong?
A: Keep those stops away from the most obvious support or resistance levels, such as round numbers. There's a lot to gain by pushing price through these levels. It cleans out one side of the market and sets up a vacuum headed the other way. It's one reason I'll actually sell short into a breakout or go long into a breakdown. Keep in mind that many traders look for price stretching through a barrier as a signal to go the other way.
Q: Should I use a flat dollar or percentage stop loss?
A: I never use percentage or dollar stop losses, at least for the initial placement. The first stop loss is always based on the price pattern and where current action violates the trade setup. Of course, you need good trailing stops once a position moves in your favor, and flat dollar strategies have a useful purpose in protecting profits. But I would avoid percentage stop losses in all cases.
A move of 5%, 10% or 50% says nothing about the current market or trade setup. You could enter a position where a stock moves 11% every day on average. So your 10% stop is at risk every day because of market noise, rather than anything else. A percentage stop loss gives the illusion of controlling risk without giving you the realization of what risk is in the first place. Why is this important? Reward and risk are joined at the hip. If you don't have one right, the other won't be right either.
There is a definable risk based on the pattern and where you enter the trade. Each trade has a different risk profile, and your trade entry tells you how much it can wiggle but still get you to the goal. You need to include this standard deviation in your stop-loss planning, or you'll take maximum loss after maximum loss.
Q: I'm thinking about using time-based stops instead of price-based stops. Do they work?
A: Time-based stops may work, but time cycles are 10 times harder to manage properly than price. So your chances of being wrong with time stops are about 10 times as great. You'll also experience major drawdowns while you wait for your time to get hit.
Q: How can I protect my positions from gaps and sudden price moves? Sometimes they happen before I have a chance to set my stop losses.
A: Plan a fire drill and practice it in your head at all times. The fire drill is a consideration for the worst-case scenario. Of course, we protect positions with stops whenever we can. But things such as gaps and world events can carry positions through them, and we need to know exactly what to do when the market spikes. The only way to accomplish this is to visualize it happening and to see how you really want to address it. Then you'll act spontaneously when the time comes.
If a stock is set to gap through your stop loss when it opens, do you sell it immediately or wait for a bounce? There's really no right answer. I usually pull my stop and watch the first few minutes of trading. If the market reverses, I try to close out on the bounce to a common retracement level.
Some midday panic situations are global, while others are sudden. Most times, my preferred fire drill is to exit first and ask questions later. Sometimes I'll see the futures go crazy and not know why. They may not affect my individual positions at the time, but I'll often exit everything until I can find out what happened. I still remember the futures going crazy on Sept. 11, 2001. There was only a few minutes to jump ship before the market was shut down for days.
Q: I'm placing very tight stops on every trade, but they keep getting hit. What am I doing wrong?
A: Base your stops on the risk profile of the stock you're trading. You can't trade a volatile biotech stock and expect to get away with a 15- cent stop loss. But you might be able to do it with a slow moving REIT or paper company. Look at total dollar exposure and the stock's volatility. Be focused on exiting when you're wrong, wherever that is on the price chart. The only way that makes sense with your stop loss is if your entry was appropriate to the trade setup. You can also take another shot at a stock if your stop loss gets hit or the stock recovers. These new positions should move in your favor immediately, or you should jump ship again because you were already wrong once.
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This guest article was written by Alan Farley, author of "The Master Swing Trader." Be sure to read "Stop Loss Questions And Answers - Part II" in the next weekend issue of the RightLine Report.
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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