Notes From The Editor

Trading as a Business

Do you trade for a living, or do you trade to supplement the income you get from a regular job? Most swing traders fall into the second category, while the first is usually made up of daytraders.

But in either case, trading is something that's inherently entrepreneurial. You're a) working for yourself, b) risking capital to make money, and c) trying to achieve a steady flow of income. Essentially, it's a business.

This approach is a big shift from the perspective that many traders have. They tend to think of the whole endeavor as something more akin to gambling - a novel way to earn an extra bit of dough every week. The way I see it, the business perspective is far more useful. It makes sense in the context of the stock market, and helps you position yourself to reach your goals.

Every business is forced to pay taxes, and it's no different with trading. There are certain rules that dictate how much you must fork over to Uncle Sam, depending on how often you trade and other factors. A little research in this area can yield some helpful, money-saving information.

Profitable businesses also have reliable, efficient internal systems. To put it another way, they apply good habits and business practices consistently to improve their chances of success. Traders can use the same methodical approach to their advantage. This means consistent use of risk management and stop-loss methods, a non-emotional, calculated approach to entering trades, and good record-keeping.

Every successful firm knows that professionalism and profits go hand-in-hand. Organize everything about your trading for maximum efficiency. Keep your desk area uncluttered. Clear your mind of other details when it's time to trade and focus on the task at hand. Act like a pro!

Businesses also need to be acutely aware of the marketplace, their own strengths and shortcomings, and any future trends that might have an impact on their ability to make money. With that in mind, next week I'll introduce you to a common business planning tool that's just as useful in the trading world.

Here's to profits,

Kent Barton
Senior Analyst

Quick List

    
Stock     04/21     04/21      Buy      Short   Trailing Stops     Gain 
Symbol    Price      +/-      Entry     Entry   Initial/Tighten   Amount 
------  --------  --------  --------  --------  ---------------  --------

STC       41.40      0.26     42.06                  2.65/1.33      2.04
SASR      24.23      0.26     24.57     22.91        1.66/0.83       2.3
CUTR      22.29      0.25     22.95     21.12        1.83/0.92       2.8
VCYT      23.14      0.40     23.68     21.93        1.75/0.88      2.22
DBX       21.73     -0.03     22.12                  1.23/0.62      0.82

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.

Market Summary

The top US stock averages finished higher on Friday, though not enough to put the entire week into bull territory due to recession and banking sector concerns. Better manufacturing data than expected countered some of the weaker economic numbers reported earlier this week. In equities, consumer products maker Procter & Gamble (PG) topped quarterly profit expectations while noting "a very difficult cost and operating environment." The S&P 500 Index closed slightly up at 4133.52, as did the the Dow Jones industrial average now at 33,808.96, and the Nasdaq Composite edged up to 12,072.46. The 10-year Treasury yield was up about 2 basis points at 3.566%, gold was also higher, Bitcoin and oil were lower.

                      Friday                 On The Week      
                  --------------------   --------------------
Dow                 33,808.96    22.34       -77.51    -0.23%
Nasdaq              12,072.46    12.90       -51.01    -0.42%
S&P 500              4,133.52     3.73        -4.12     -0.1%

NYSE Volume                      3.63B                       
NYSE Advancers                   1,351                       
NYSE Decliners                   1,612                       

Nasdaq Volume                    4.89B                       
Nasdaq Advancers                 2,102                       
Nasdaq Decliners                 2,294                       

                                 New Highs/Lows

                   04/14  04/17  04/18  04/19  04/20  04/21
                 --------------------------------------------
NYSE New Highs        46     56     66     54     70     53
NYSE New Lows         40     39     34     33     34     39
Nasdaq New Highs      71     81     74     65     58     68
Nasdaq New Lows      222    170    152    140    149    201
   

TRADER'S TIP: "Changing Your RightLine Subscriber Acct Info"

RightLine Subscribers can easily change their account preferences and other information. Simply go to https://www.rightline.net/preferences/lookup.html.

There are several items you can change in this section. For example, you can choose whether to receive the RightLine Report in html with color and graphics, or just plain text. You can also choose to turn the Split & Buyback email alerts "on" or "off." You can change your password and other contact information too.

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 - 4133.52 April 21, 2023

52-Week High: 4385.83
52-Week Low: 3491.58
Daily Trend: DOWN
Weekly trend: UP
Weekly Pivot Levels
Resistance 3: 4250.19
Resistance 2: 4194.57
Resistance 1: 4164.04
Pivot: 4138.95
Support 1: 4108.42
Support 2: 4083.33
Support 3: 4027.71

NASDAQ Composite - 12072.46 April 21, 2023

52-Week High: 13212.60
52-Week Low: 10088.83
Daily Trend: DOWN
Weekly trend: UP
Weekly Pivot Levels
Resistance 3: 12618.79
Resistance 2: 12360.18
Resistance 1: 12216.32
Pivot: 12101.57
Support 1: 11957.71
Support 2: 11842.96
Support 3: 11584.34
        
Dow Industrials - 33808.96 April 21, 2023

52-Week High: 34727.38
52-Week Low: 28660.94
Daily Trend: DOWN
Weekly trend: UP
Weekly Pivot Levels
Resistance 3: 34516.86
Resistance 2: 34175.98
Resistance 1: 33992.47
Pivot: 33835.10
Support 1: 33651.59
Support 2: 33494.22
Support 3: 33153.34
 

Market Calendar

ECONOMIC REPORTS AND EVENTS (all times are Eastern):    

Monday, April 24, 2023:
24-Apr  MONDAY, APRIL 24   
24-Apr          None scheduled
24-Apr  TUESDAY, APRIL 25   

Tuesday, April 25, 2023:
25-Apr  9:00 am   
25-Apr  9:00 am   FHFA home price index
25-Apr  10:00 am   New home sales
25-Apr  10:00 am   Consumer confidence
25-Apr  WEDNESDAY, APRIL 26   

Wednesday, April 26, 2023:
26-Apr  8:30 am   Durable-goods orders
26-Apr  8:30 am   Durable-goods minus transportation
26-Apr  8:30 am   Advanced U.S. trade balance in goods
26-Apr  8:30 am   Advanced retail inventories
26-Apr  8:30 am   Advanced wholesale inventories
26-Apr  THURSDAY, APRIL 27   

Thursday, April 27, 2023:
27-Apr  8:30 am   GDP
27-Apr  8:30 am   Initial jobless claims
27-Apr  8:30 am   Continuing jobless claims
27-Apr  10:00 am   Pending home sales
27-Apr  FRIDAY, APRIL 28   

Friday, April 28, 2023:
28-Apr  8:30 am   Employment cost index
28-Apr  8:30 am   Personal income (nominal)
28-Apr  8:30 am   Personal spending (nominal)
28-Apr  8:30 am   PCE index
28-Apr  8:30 am   Core PCE index
28-Apr  8:30 am   PCE (year-over-year)
28-Apr  8:30 am   Core PCE (year-over-year)
28-Apr  9:45 am   Chicago Business Barometer
28-Apr  10 am   Consumer sentiment (final)


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

TRADER'S TIP: "The Buy and Hold Myth"

Most long-term investors like to believe they are unaffected by short- term price fluctuations in the market. However, since most buy-and- hold advocates have no Exit Plan or Risk Control Strategy to protect capital and profits, the emotions of fear and pain eventually come to bear, often forcing unprepared investors to sell under the worst conditions.

Stocks Covered in This Issue

FINANCIAL SERVICES SECTOR

Stewart Information Services Corporation (STC: Financial Services/Insurance-Property & Casualty) - BULLISH BOUNCE. Looking a bit frayed after sliding downhill in recent sessions, on Friday STC seemed intent on initiating a rebound. With moving average support nearby, STC 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 42.06. Manage risk with a 2.65 stop. Tighten your stop to 1.33 when you have a 2.04 profit. STC ended the day at 41.40. Earnings Report Date: Apr 26, 2023. Beta: 1.13. Market-Cap: 1.134B. Optionable.

Sandy Spring Bancorp, Inc. (SASR: Financial Services/Banks-Regional) - 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 SASR. A move to the upside will trigger our BUY entry at 24.57, while a drop to 22.91 will trigger our SELL short entry. Follow your position with a 1.66 trailing stop. Tighten the stop to 0.83 once you have a 2.3 gain. SASR closed Friday at 24.23. Earnings Report Date: Jul 19, 2023. Beta: N/A. Market-Cap: 1.087B. Optionable.

HEALTHCARE SECTOR

Cutera, Inc. (CUTR: Healthcare/Medical Devices) - SQUEEZE PLAY. Friday's trading action forced CUTR's daily price range into an abnormally narrow state. This translates into opportunity; for the cyclical nature of price volatility is to shrink extensively, then swell rapidly as shares move in one direction or another. Instead of trying to predict the direction CUTR will take when price volatility begins to increase, we'll set both a BUY (long) and a SELL (short) trigger to get us into the right trade. Be ready to BUY shares at 22.95 if CUTR moves higher, and place your order to SELL short at 21.12 if price declines to that level. As usual follow your entry with a trailing stop, 1.83 should be sufficient. Reduce your stop to 0.92 on a 2.8 gain. CUTR closed Friday at 22.29. Earnings Report Date: May 08, 2023. Beta: 1.56. Market-Cap: 441.083M. Optionable.

Veracyte, Inc. (VCYT: Healthcare/Biotechnology) - SQUEEZE PLAY. VCYT 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. VCYT is now at 23.14. We can capture price action either way by placing a BUY trigger at 23.68 and a SELL short trigger at 21.93. Once VCYT 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 1.75. When you acquire a 2.22 profit, tighten the stop to 0.88. Earnings Report Date: May 04, 2023. Beta: 1.40. Market-Cap: 1.67B. Optionable.

TECHNOLOGY SECTOR

Dropbox, Inc. (DBX: Technology/Software-Infrastructure) - BULLISH BOUNCE. The charts for DBX 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 22.12, and follow your entry with a trailing stop of 1.23. Tighten it to 0.62 when a 0.82 profit is reached. DBX ended the latest session at 21.73. Earnings Report Date: May 04, 2023. Beta: 0.84. Market-Cap: 7.632B. 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  
---------------- -------     --------    -------     ------  -------   

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.

Trader's Corner

"Point and Figure Charting Part I: The Basics"

What exactly makes a stock move? You'll get a variety of answers, depending on who you ask. Investors who use fundamental analysis will point to changing business conditions or major news stories, while those with a more technical approach might focus on breaches of key trendlines or areas of support/resistance.

But when you take it down to the most fundamental level, stock movement is driven by only one thing: differences in supply and demand. When buying outstrips selling (or vice versa), an equity's price changes. Point-and-figure charting is a tool that can help traders monitor significant changes in the supply/demand relationships, while filtering out the "noise" brought about by day-to-day price gyrations.

For those used to conventional bar charts, a point-and-figure chart looks more like a big game of tic-tac-toe than a typical graph of an equity's movement. And in addition to all those X's and O's, the "time" axis (or X-axis, on a bar chart) is missing completely. Let's take a look at some of the main features of a "p-n-f" chart:

Intel (INTC) - Point and Figure chart:



This chart depicts INTC's movement from early-2002 through mid-2004. Even though there's no axis that measures time intervals, reference points show us what timeframe we're looking at. The lines extending from the "03" and "04" at the bottom denote the beginning of 2003 and 2004, while the red numbers in the various columns signify the month. Months are represented by the red numbers 1-9 (for January through September) and the capital letters A-C (for October through December).

The left-most red letter is "2", which shows up in the chart's second column. Looking below we see no year marker to the left of "03," meaning THAT column was formed in 2002. So this particular chart extends back to February 2002. There is no standard time interval for p-n-f charts - some might show activity dating back only 5-6 months, while others (like INTC) have a longer timeframe. In general, stocks that trade in wider price ranges tend to create more columns.

P-n-f charts are formed by alternating columns of "X" (rising price) and "O" (falling price), with the price axis showing the extent of the movement. For example, a stock that rose from 30.00 to 33.00 would form a column that looked like this:

35
34
33 X
32 X
31 X
30 X

This column would continue until the stock (we'll call it ZZZ) produced what's referred to as a "three-box reversal." Each "box" is a price unit. For stocks trading at 20-100, the box size is one dollar. Box size decreases to 0.50 intervals in the 5-15 range, and is bumped up to 2.00 for equities trading above 100. This difference is visible on the Intel chart, with the price axis shrinking to 50-cent divisions below 20.00. These varying box sizes take into account the relative impact of a stock's movement, depending on its price; a 2-dollar move is a lot more significant for a stock trading at 12.00, compared to one that's trading at 43.00.

Let's return to our example. ZZZ is trading between 20 and 100, so it'll take a reversal of 3 boxes (3 dollars) to create a column of O's. Subtracting 3 from the column's high (33), we see that ZZZ will have to hit 30 in order to form a three-box reversal. But momentum is on the bulls' side. Shares only pull back to 31.75, then rise to a new high 34.15. This adds another "X" to the column:

35
34 X
33 X
32 X
31 X
30 X

Finally, a more meaningful sell-off takes place as the stock falls from its relative high of 34.15. At this point it would take a trade at or below 31.00 to mint a three-box reversal (34 - 3 = 31). ZZZ falls to 31.02, then pauses. At this point there is still no reversal - the actual price level (31.00) has to be traded first. Finally, there's another round of selling and shares hit an intraday low of 30.93. The p-n-f chart now shows ZZZ trading in a column of O's:

35
34 X
33 X O
32 X O
31 X O
30 X

The stock would remain in a column O's until it gave a three-box reversal to the upside. For example, a decline to 25.70 would extend the column all the way down to 26. (But not 25 - it would take a tick at or below 25.00 to accomplish that). ZZZ would then have to turn around and move back to 29.00 (26 + 3 = 29) in order to create another column of "X."

Another point to keep in mind is that opening and closing price data is not used in p-n-f charting. What matters is the intraday high or low. If either of these extremes adds to a column or creates a three-box reversal, appropriate changes are made to the p-n-f chart. Any other movement is ignored. This goes a long way towards filtering out the price movements that don't have a major impact on the supply/demand relationship.

We can identify key turning points in that relationship by using trendlines, which are familiar to most bar chartists. These trends always form a 45-degree angle, and are denoted by "+" signs.

Adobe Systems (ADBE) - Point and Figure chart

>

P-n-f trends are formed differently, but don't let that confuse you; approach them just like would with a conventional bar chart trend. As shown on the ADBE chart, strong reversals can take place when a downtrending stock encounters bullish support. The same is true of an uptrending stock when it meets bearish resistance. Violations of those levels are also significant. The red arrow points out the recent breakdown below support, which is a negative sign for ADBE.

These are just one way to profit from point-and-figure analysis. Next weekend in Part II we'll delve deeper and discuss buy/sell signals (which indicate key turning points in the all-important battle between supply and demand), charting of indexes, and a useful technique to help manage risk. See you then!

Kent Barton
Senior Analyst

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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