April 23, 2022 - The RightLine Report
Notes From The Editor
One of my favorite aspects of trading - something that took me several years to fully realize - is how much it can teach you about life. I'm not talking about some pseudo-philosophical mumbo jumbo here, but real life lessons and skills that come in handy every day.
Trading isn't for the weak-willed. The majority of those who attempt it, misguided by flawed assumptions and a lack of risk management, wind up losing money. It takes a certain mind-set to be consistently successful. Here are some of the key traits that spring to mind:
* Patience. Waiting for the right set-up can take time. Spending countless hours in front of stock charts just watching the bars tick by can be tedious. However, this selectiveness pays off in a big way when only trades with the highest chances for success are taken.
* Humility. It's human nature to become overly confident when you're on a win streak. Once this happens, poor risk management habits start to creep in. Inevitably your trading account will soon take a large hit - the market's way of reminding you that no one is invincible.
* Discipline. Following basic rules - religiously setting stops, using correct position sizing, satisfying certain technical conditions before entering a position, and so on - becomes second nature after enough winning trades. Until that point is reached, it takes a lot of will- power to avoid tossing those rules aside when your "gut" tells you to jump in.
* Perspective. The breathless hype generated by the stock media gives traders the illusion that every session is the most important one they'll ever take part in. Over time this notion becomes laughable. Long-term success in the market is what counts - not what happens over one day, week, or month.
I was utterly surprised to find that as I improved in each of these areas, I also found myself better equipped to deal with life in general. There's a certain natural confidence that comes with managing the challenges of trading. Here's hoping that your own journey will be as rewarding!
Here's to profits,
Kent Barton
Senior Analyst
Stocks Covered Today Stock Splits Trader's Corner
Quick List
Stock 04/23 04/23 Buy Short Trailing Stops Gain
Symbol Price +/- Entry Entry Initial/Tighten Amount
------ -------- -------- -------- -------- --------------- --------
PTON 20.39 -0.08 21.14 19.06 2.08/1.04 4.52
COWN 23.77 -0.57 24.61 22.87 1.74/0.87 2.3
ARQT 20.18 -0.03 20.69 19.29 1.4/0.7 2.1
CRNX 21.02 -0.14 22.01 20.31 1.7/0.85 2.44
ZNTL 22.52 -0.43 23.73 21.65 2.08/1.04 6.5
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 major US indices were significantly lower on Friday as traders sold stocks in anticipation of a likely near-term period of aggressive Fed Bank policy tightening. The market session closed out with a weekly loss, while the economic calendar offered some upbeat data. The news included key preliminary reports on manufacturing, and services sector activity suggested expansion. In other news, shares of Gap Inc (GPS $12) plunged almost 20% after the company presented a deep cut in its growth outlook for the current quarter and announced that the CEO is leaving the company. Treasuries were mixed, the USD/dollar moved higher, oil prices and gold finished the session lower.
Friday
--------------------
Dow 33,811.40 -981.36
Nasdaq 12,839.29 -335.36
S&P 500 4,271.78 -121.88
NYSE Volume 4.62B
NYSE Advancers 538
NYSE Decliners 2,803
Nasdaq Volume 4.44B
Nasdaq Advancers 1,165
Nasdaq Decliners 3,528
New Highs/Lows
04/15 04/18 04/19 04/20 04/21 04/22
--------------------------------------------
NYSE New Highs 0 157 99 172 169 20
NYSE New Lows 0 321 285 97 251 412
Nasdaq New Highs 0 93 89 108 100 43
Nasdaq New Lows 0 513 306 206 485 635
Stocks Covered Today Stock Splits Trader's Corner
TRADER'S TIP: "EMAs, SMAs, or DMAs?"
Did you know that EMAs - Exponential Moving Averages - are calculated based on "yesterday's" EMA? That's where the "exponential" part comes in. This means that if you're looking at a 200 Daily EMA based on 500 days of data vs. 2000 days of data, the results will be different. This explains why various charts programs display differing EMAs for the same stock. Though this calculation also affects the shorter moving averages like the 22 and 50 DMA (Daily Moving Average), it is not as dramatic as with the 200 EMA. For daily charts the most widely used 200 MA is the 200 SMA (Simple Moving Average). However, in recent years some traders have begun using 200 EMAs because of the default settings in the charting packages. It pays to know which you are viewing. For the record, at RightLine we use EMAs for all moving averages except the 200 DMA, for which we use the SMA. One powerful feature found in RightLine and some other charting programs is the ability to change the time frame referenced on the chart. While this is a very helpful feature, be aware that changing this setting will affect any displayed EMAs (Exponential Moving Average) lines.
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 - 4271.78 April 22, 2022
52-Week High: 4818.62
52-Week Low: 4056.88
Daily Trend: UP
Weekly trend: UP
Weekly Pivot Levels
Resistance 3: 4841.41
Resistance 2: 4596.09
Resistance 1: 4433.93
Pivot: 4350.78
Support 1: 4188.62
Support 2: 4105.46
Support 3: 3860.14
NASDAQ Composite - 12839.29 April 22, 2022
52-Week High: 16212.23
52-Week Low: 12555.35
Daily Trend: DOWN
Weekly trend: DOWN
Weekly Pivot Levels
Resistance 3: 14891.36
Resistance 2: 14008.68
Resistance 1: 13423.98
Pivot: 13126.00
Support 1: 12541.30
Support 2: 12243.32
Support 3: 11360.64
Dow Industrials - 33811.40 April 22, 2022
52-Week High: 36952.65
52-Week Low: 32272.64
Daily Trend: UP
Weekly trend: UP
Weekly Pivot Levels
Resistance 3: 37796.66
Resistance 2: 36077.83
Resistance 1: 34944.61
Pivot: 34359.00
Support 1: 33225.78
Support 2: 32640.17
Support 3: 30921.34
Stocks Covered Today Stock Splits Trader's Corner
Market Calendar
ECONOMIC REPORTS AND EVENTS (all times are Eastern): Monday, April 25, 2022: 25-Apr None scheduled Tuesday, April 26, 2022: 26-Apr 8:30 am Durable goods orders 26-Apr 8:30 am Core capital equipment orders 26-Apr 9 am S&P Case-Shiller U.S. home price index (year-over-year) 26-Apr 9 am FHFA U.S. home price index (year-over-year) 26-Apr 10 am Consumer confidence index 26-Apr 10 am New home sales (SAAR) Wednesday, April 27, 2022: 27-Apr 8:30 am Advance report on international trade in goods 27-Apr 10 am Pending home sales index 27-Apr 10 am Home ownership rate (NSA) Thursday, April 28, 2022: 28-Apr 8:30 am Initial jobless claims 28-Apr 8:30 am Continuing jobless claims 28-Apr 8:30 am Real gross domestic product (SAAR) (first estimate) Friday, April 29, 2022: 29-Apr 8:30 am Employment cost index 29-Apr 8:30 am PCE price index 29-Apr 8:30 am Core PCE price index 29-Apr 8:30 am PCE price index (year-over-year) 29-Apr 8:30 am Core PCE price index (year-over-year) 29-Apr 8:30 am Nominal personal income 29-Apr 8:30 am Nominal consumer spending 29-Apr 8:30 am Real disposable incomes 29-Apr 8:30 am Real consumer spending 29-Apr 9:45 am Chicago PMI 29-Apr 10 am UMich consumer sentiment index (final) 29-Apr 10 am UMich 5-year inflation expectations 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: "In Sync with the Trend = More Winners"
It's much easier to make money when we're in sync with the trend - yet even the best setups don't always produce a profit. A review of the "All Time Top Ten" mechanical trading systems tested by Futures Truth revealed that the best winning rate was 57.5%, while several were less than 50%. The key to the success of these systems is that winning trades outperformed losers by a wide margin. The stock market can be a finicky creature at times. Always use Risk Control to protect your profits and capital. One big winner can offset several small losers, so always cut losses quickly and let the winners grow.
Stocks Covered in This Issue
CONSUMER CYCLICAL SECTOR
Peloton Interactive, Inc. (PTON: Consumer Cyclical/Leisure) - SQUEEZE PLAY. A look at PTON's daily chart shows what a price squeeze is all about. The constricted high-low daily trading range has produced a setup similar to a tightly coiled spring. Expect price to move sharply soon, with the direction yet to be determined. Let the upcoming market action resolve whether you will buy shares or sell short. To capture a move either way, place a BUY trigger at 21.14 and a SELL short trigger at 19.06. Once PTON shows which way it's headed, place your triggered entry order. As soon as your order is filled, follow with a trailing stop of 2.08 and tighten to 1.04 on a 4.52 gain. PTON closed Friday at 20.39. Earnings Report Date: May 04, 2022. Beta: 0.96. Market-Cap: 6.761B. Optionable.
FINANCIAL SERVICES SECTOR
Cowen Inc. (COWN: Financial Services/Capital Markets) - 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 COWN. A move to the upside will trigger our BUY entry at 24.61, while a drop to 22.87 will trigger our SELL short entry. Follow your position with a 1.74 trailing stop. Tighten the stop to 0.87 once you have a 2.3 gain. COWN closed Friday at 23.77. Earnings Report Date: Apr 29, 2022. Beta: 1.43. Market-Cap: 652.691M. Optionable.
HEALTHCARE SECTOR
Arcutis Biotherapeutics, Inc. (ARQT: Healthcare/Biotechnology) - SQUEEZE PLAY. Friday's narrow price range has created a potentially profitable setup in ARQT, as sellers and buyers find themselves in a near tie for control of price direction. The next short-term trend could go either way, so prepare for a move out of the draw within the next day or so. Set a BUY entry at 20.69 and a SELL short entry at 19.29. Let ARQT's price action determine your long or short entry. Once the order is filled, place a 1.4 trailing stop, and tighten it to 0.7 upon getting a 2.1 gain. ARQT closed Friday at 20.18. Earnings Report Date: May 02, 2022. Beta: 0.35. Market-Cap: 1.038B. Optionable.
Crinetics Pharmaceuticals, Inc. (CRNX: Healthcare/Biotechnology) - SQUEEZE PLAY. Friday's trading action forced CRNX'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 CRNX 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 22.01 if CRNX moves higher, and place your order to SELL short at 20.31 if price declines to that level. As usual follow your entry with a trailing stop, 1.7 should be sufficient. Reduce your stop to 0.85 on a 2.44 gain. CRNX closed Friday at 21.02. Earnings Report Date: May 04, 2022. Beta: 1.45. Market-Cap: 1.123B. Optionable.
Zentalis Pharmaceuticals, Inc. (ZNTL: Healthcare/Biotechnology) - SQUEEZE PLAY. ZNTL 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. ZNTL is now at 22.52. We can capture price action either way by placing a BUY trigger at 23.73 and a SELL short trigger at 21.65. Once ZNTL 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 2.08. When you acquire a 6.5 profit, tighten the stop to 1.04. Earnings Report Date: May 16, 2022. Beta: 2.28. Market-Cap: 1.026B. 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
"Index and Sector Stocks"
Want to trade the entire Nasdaq, Dow, or S&P 500 in one stock? Index stocks and sector stocks (formally known as ETFs, or Exchange Traded Funds) provide a convenient way to invest in ALL of the leading companies in a top index or industry. Similar to mutual funds, sector and index stocks provide access to a "basket" of stocks in an entire index or industry sector through a single transaction.
Sector and index stocks trade just like any other stock and can be used for short-term or longer-term strategies. Short-term traders love them because they are very liquid, can easily be traded both long or short on margin, and tend to move closely with their related indices. For long-term investors, these stocks provide unique tax advantages, and unlike mutual funds there are no management fees.
Just as "normal" stocks represent ownership in a publicly traded company, sector and index stocks signify ownership in a Unit Investment Trust, or UIT - a collection of securities (stocks for our purposes) bundled together in a trust. Due to the number of stocks in each group, sector and index stocks provide an element of safety through diversification, and are usually less volatile than the individual stocks they represent. They generally provide a lower-stress way to trade highly volatile markets.
Sector stocks are represented by individual stock symbols - here are several examples:
SPY - Formally named Standard & Poor's Depositary Receipts, SPDRs are commonly called "Spiders" and represent the basket of stocks in the S&P 500 (SPX). This was the first index stock and was created by the American Stock Exchange in January 1993.
DIA - The Dow Industrial Average Model of New Depository Shares (DIAMONDS) represent the basket of 30 stocks in the DOW (DJX or INDU).
QQQQ - Represents the stocks in the Nasdaq 100 (NDX).
HOLDRS - HOLding Company Depositary ReceiptS represent the common stock of companies from a specific industry segment. Merrill Lynch launched HOLDRS for trading on the Amex stock exchange, which is now the NYSE MKT LLC Equities exchange. For more information on Merrill Lynch's current HOLDRS and the stocks represented by each one, go to the following webpage:
https://www.holdrs.com/holdrs/main/index.asp?Action=Outstanding
FFX - Fortune 500 index represents the companies in the Fortune 500.
FEX - Fortune e-50 index represents the top 50 Internet economy companies.
IShares Sector Funds provide investment vehicles similar to HOLDRS and are modeled after specific index funds based on the Russell 2000, Morgan Stanley Capital International (MSCI) Index Fund Series, S&P 500, and the DOW indices. Ishares are the world's most extensive family of Exchange Traded Funds (ETFs).
You can trade index and sector stocks exactly the same way you trade regular stocks through any brokerage. HOLDRS require a minimum purchase of 100 shares, but you can buy a single share of the other sector stocks. The lower volatility of sector stocks makes them relatively easy on the nerves to trade, but as with any trade, risk management is critical and stops must be used to protect against the market moving against a position.
Good luck!
Note: For more on Index and Sector Funds (ETFs) go to the following webpage: https://prorightline.com/education/etfs.html
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.
Disclaimer
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